Tuesday, June 20, 2006
Logistics and Economics will Doom PAT’s Garage Plans
Attempting to resuscitate the $21 million South Hills parking garage, the Port Authority will enter into a lease arrangement with the Village Square Giant Eagle to take up to 300 spaces for an annual lease rate of $56,000. Recall that the garage has 2,200 spaces and is only utilizing about 250 spaces right now on a daily basis. Opening up 300 spots for Giant Eagle means that instead of four floors of the garage being shuttered, three floors will be shut down.
Now consider the lengths to which a Giant Eagle employee will go in order to park at the garage—about a half of a mile away and with two heavily-traveled roads between the garage and the store with no sidewalks or pedestrian crossings—and it will be easy to understand why we’ll never see the full component of cars parked in the garage. Weather, traffic, and time will all conspire against getting employees to use the garage. Instead, look for them to find parking space closer in other retail lots. Maybe managers will lead the way and park at the garage, but we suspect not. Eventually, the Port Authority will probably have to offer to run a “free” shuttle between the garage and Giant Eagle.
Also consider the economics of the deal. Taking 300 spaces for $56,000 amount to $186 per space, or $16 per space per month. In reality, there are probably 200 cars are parking there now 300 days a year at $2 per day, meaning the authority is getting $120,000 per year for those vehicles. The lease with Giant Eagle will add $56,000, meaning revenues for the garage will be about $180,000 per year. With the garage costing $21 million to build, annual depreciation (10%) is $2.1 million. The annual opportunity cost of invested capital is at least $1.2 million. We must add operating and maintenance costs, say $500,000. Can you say at least $1.5 million in losses annually?
Is it any wonder that PAT has the financial problems it has?
Now consider the lengths to which a Giant Eagle employee will go in order to park at the garage—about a half of a mile away and with two heavily-traveled roads between the garage and the store with no sidewalks or pedestrian crossings—and it will be easy to understand why we’ll never see the full component of cars parked in the garage. Weather, traffic, and time will all conspire against getting employees to use the garage. Instead, look for them to find parking space closer in other retail lots. Maybe managers will lead the way and park at the garage, but we suspect not. Eventually, the Port Authority will probably have to offer to run a “free” shuttle between the garage and Giant Eagle.
Also consider the economics of the deal. Taking 300 spaces for $56,000 amount to $186 per space, or $16 per space per month. In reality, there are probably 200 cars are parking there now 300 days a year at $2 per day, meaning the authority is getting $120,000 per year for those vehicles. The lease with Giant Eagle will add $56,000, meaning revenues for the garage will be about $180,000 per year. With the garage costing $21 million to build, annual depreciation (10%) is $2.1 million. The annual opportunity cost of invested capital is at least $1.2 million. We must add operating and maintenance costs, say $500,000. Can you say at least $1.5 million in losses annually?
Is it any wonder that PAT has the financial problems it has?
