The Massachusetts Bay Transportation Authority is weighing plans to partner with a Wall Street investment bank and package the revenue from its public parking garages into securities bonds that could be sold to investors. It’s a move that could provide a financial windfall for the cash-strapped authority, but could also weigh heavily on commercial real estate development.
“We are talking to investment bankers,” Massachusetts Department of Transportation (MassDOT) Secretary Jeffrey Mullan told Banker & Tradesman last week. “We’ve been consistent that we need to keep the public in public transportation, but we’re also looking to leverage our other resources with private partners. It’s definitely something we’re looking at.”
Daley’s Deal
In 2006, Morgan Stanley and LAZ Parking paid $563 million for a 99-year concession on Chicago’s underground public parking garages. Two years later, Morgan Stanley and LAZ took on Chicago’s metered parking for $1.16 billion over 75 years.
As was the case with residential and commercial mortgages, Morgan Stanley was attracted to the Chicago deals by their cash flow, rather than the deals’ actual collateral. If the bank controlled a pool of regular income, it could bond out the revenue, satisfy demand from structured finance investors, and reap fees for itself.
The mortgage securitization boom helped fuel record profits on Wall Street, and its collapse iced a huge money-maker for investment banks. As banks work to resuscitate their mortgage securitization machinery, they’re also looking for other assets they can buy up, and then bond out. Urban parking lots are analogous to real estate mortgages in that their cash flows are relatively predictable. Morgan Stanley and LAZ are said to be scouring the country looking to duplicate their Chicago parking deals.
Officials inside Boston City Hall debated, and ultimately rejected, the idea of following Chicago’s example. According to a source with knowledge of the discussions, Boston officials felt Chicago had received a raw deal financially. They also worried about the political fallout that Chicago’s Mayor Richard Daley suffered after he signed the parking meter deal.
The MBTA has given the Morgan Stanley model more serious consideration. LAZ Parking, the bank’s partner in Chicago, already operates many of the T’s garages. The T also has a new general manager, Richard Davey, who has vowed to bring a new and creative approach to the troubled authority. Secretary Mullan said his agency, which has indirect control over the T, is “aware of those examples” in Chicago.
On its website, the T says it operates 51,000 parking spaces in 150 locations, making it the largest owner of off-street, paid parking in New England. In 2008, more than 8 million vehicles were parked at an MBTA-owned surface lot or garage, according to mbta.com.
The T is building a new garage at Wonderland with $23 million in federal stimulus funds, and has plans to put new garages in Salem and Beverly.
Testing The Waters
At least three massive development projects hinge on what shape the garage plan ultimately takes, and what type of payday the T is able to achieve.
After Jones Lang LaSalle exited a deal to redevelop the 16-acre South Station Postal Annex in January, Mullan’s agency announced plans to buy the postal site and use it as a staging ground to expand rail service to South Station. That project would also include some commercial development. State House observers believe the garage deal could be part of a fundraising effort to pay for the South Station expansion.
Eurovest Development’s 1.3 million square-foot Waterfront Square project on Revere Beach is dependent on the completion of the new 1,900-car MBTA garage at Wonderland, which will free up the development site for Eurovest’s project. It’s not immediately clear what a change in the new garage’s ownership structure will mean for Waterfront Square, and the MBTA did not return calls for further comment.
Then there’s the matter of the North Station garage, which serves as the foundation of the T’s northbound commuter rail tracks, and Delaware North’s TD Garden. Last year, the legislature inserted language into a massive transportation reform bill that allowed the T to sell its North Station parking for economic development purposes.
The obvious suitor for the garage is Delaware North, which can build roughly 2 million square feet of space on land it owns along Causeway and Nashua Streets. The Causeway parcel would require underground parking; when city and state planners handed the North Station garage to the T in the late 1980’s and early 1990’s, they envisioned expanding the North Station garage under the Causeway parcel, and operating the structure as a single unit.
“It’s our understanding they’ll be testing the waters to see what sort of market there is [for the garage],” said Christopher Maher, who runs Delaware North’s local development arm. “We’re certainly interested. It’s an important piece to the viability of the master plan. We think it’s an opportune time for the T to look to dispose of this property, and hopefully pave the way for the economic development piece, and the real estate development piece.”
Mullan said the T is leaning toward offering North Station separately, apart from the pool of garages it’s looking to bond, but he also seemed to hedge a bit.
“We intend to test its value,” he said. “Our concern is that it has positive cash flow, so we’d need to replace that cash flow. But we do see value there.”
