Downtown Parking Authority Case
Date: November 16, 14
This memo evaluates proposed land use options raised by Oakmont City officials. An assessment of the financial and non-financial implications suggests that building a parking garage with fees favoring short-term parking potentially yields the most desirable outcome. This investment produces the highest net present value (NPV) and helps solve a parking space shortage. Earnings generated by the garage should be used to offset negative externalities associated with the project. Further analysis into the impact of price hikes on parking utilization, and the types of parking spots that will improve the current shortage is needed to strengthen this assessment. Financial Analysis
The likely alternatives evaluated in this memo are based on four scenarios: 1. Build a parking facility with a management firm and charge the same rates as the nearby garage (contract terms constant; renegotiation addressed in the sensitivity analysis) 2. Outsource garage operations, but adjust prices to favor short-term parking 3. Sell the site to a developer and derive the property tax
4. Sell the site to a developer, derive property tax, and reinvest sales revenue at 5% interest Based on a comparison of discounted cash flows (DCF) and related financial metrics, the second option has potential for the strongest financial performance. Option 2 yields the highest NPV of nearly $5.5 million, which is 58% higher than the next best outcome in scenario 4, and 75% higher than the poorest outcome in scenario 1 (Exhibit A). Lastly, option 2’s IRR is 35%, which is greater than Oakmont City’s required 10% ROI, and thus making the project financially feasible.
Several assumptions regarding fee structure, volume, timing, and financing are built into the models (Exhibits B-E). Operating revenue in option 2 is based on structuring hourly rates to start low, incrementally rise,...
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