As the automobile took
over America, so did parking lots and parking
garages. And for decades they
were a pretty good business. In fact, they
were a such good business. We kept
building them. According to experts,
there are between 700 million and 2 billion
parking spaces in America. That's 2.5 to 7
spots for every registered vehicle, and
only about 10% of that is paid. Our aim is as a company
is to really give our clients and customers
something more valuable than money. And that's
time. That's the one thing we
none of us can get enough of. Low barriers to entry
make it a crowded, fragmented industry. Competition is fierce,
demand is declining, Factors are numerous but
include blows. E-commerce has dealt
brick and mortar retail, the rise of ride hailing
and a post-pandemic world where few drive into
urban areas five days a week, if at all. With such dramatic
shifts, the industry has been forced to find ways
to reinvent itself, partly by expanding
services and partly by leaning into
technological advances. But that is, of course,
risky and takes capital. The larger folks, the
folks with the capital to invest in R&D and
technological capabilities can do
things like dynamic pricing, gateless
technologies that really differentiate them from
the mom and pop parking management company that
just manages a couple of locations in a single
region. Parking lots and garages
began popping up on the American landscape in
the 1920s. They were needed to deal
with the exploding number of cars on American
roads. In 1900, there were only
8000 cars in the United States. 20 years later,
9 million. And by 1929, 23 million. Early garages were fully
enclosed. Many of them looked like
ordinary office buildings. Vehicles
simply weren't as hardy in bad weather as they
are today. In 1935, the curbside
parking meter was invented. Some people say that
parking is like sex. If you have to pay for
it, it's just not right. People think that it
really is natural that it's free. Even in New
York City, of course, which has the highest
land values maybe on earth, 97% of all the
curb parking spaces are free. Some early garages were
run as exclusive private clubs with car elevators
and valet services. These slowly gave way to
the open air garages and ramps familiar today in
the 1960s. Politicians encouraged
and invested heavily in garages and parking to
attract consumers to downtown areas. They were very often
family businesses. They were run as systems
and they were run in major cities. They were
a little behind the times for a long time in point
of sale technology and inventory. While the industry was
dominated by small family operations when Jerry
Marcus started in 1977, today it is more
consolidated and more professionalized. For
example, many garages use dynamic pricing
techniques where prices change based on how high
demand is. Parking management is
often outsourced. A lot of these
management companies are quite small, serving
only a few facilities. Some are large, such as
lazy parking and park, and a couple are
publicly traded, including ABM and SP
plus. Parking management
companies like Lazy Parking and SP plus each
run more than 1 million parking spots. Finding reliable
industry level financial data can be difficult,
but the parking management industry, as
this group of companies is called, pulled in
somewhere between $8 Billion and just over
$10 billion in revenue in 2022, depending on the
source. The entire industry. Parking management
companies, landlords and everybody else pulled in
about 121 billion. The industry is slowly
recovering from the pits of the COVID 19
pandemic. Revenues fell to $58 billion in 2020,
56% lower than 2019. People got very creative. They gave COVID shots in
their parking facilities and they became
temporary hospital wards. And they did a really
good job in bringing the industry back. Some also sold premium
parking spots for higher prices and offered valet
services. The entire parking
industry is projected to pull in about $144 in
2023. That is a 10% increase
over 2019 levels. Yet many in the industry
worry about demand declines. As with many
things in such a fragmented industry,
getting reliable numbers is difficult. But
insiders see evidence it is happening. Less people are using
vehicles as their primary mobility solution in
terms of numbers of demand. It is in decline
in most markets except 1 or 2. In most of these markets,
such as office buildings, the number of workers
choosing to pay for parking is declining at
a rate of about 1 to 2% annually. In 2001, about
47% of young Americans ages 16 to 19 had
driver's licenses. In 2021, about 40% had
them. Our view is that people
need to get from A to B, and so we use technology
to try to make people's journey as friction free
as possible. And if that journey is
in a car, great. If it's in a ridesharing
vehicle, fine. If it's in a bus, fine. Sp+ is really the only
publicly traded company that focuses mostly on
parking. Abm is also public, but
relies far more heavily on janitorial services. Sp+ was created in 2012
through the merger of two other companies Standard
parking and Central parking. It quickly grew
from $954 Million in 2012 to more than $1.4
billion the following year. In 2022, the
company pulled in $1.5 billion in total revenue
and $225 million in adjusted gross profit. About 75% of that came
from the commercial division and 25% from
its airport services business. That segment
offers a range of services at 158 airports
in the US and Europe, including parking
shuttles and baggage handling, among other
things. Shares of the company
closed at an all time high of $44.17 on
October 31st, 2019. They then
plummeted during the pandemic and then
partially recovered. They closed on April
26th, 2023 at $32.86. We actually accelerated
our technology investments so that as
we came out of the pandemic, we would be
more capable in the technology space and
really be able to step on the gas in terms of
leading the digital transformation of our
industry. So that was the one
thing that we did not cut back. But obviously
during the pandemic, we scale up, we scale down. We're used to doing that
for hurricanes and natural disasters. Usually it's not across
the whole country all at once. So we had a lot of
practice doing that. Something that they've
always had is bringing professionalism to
somewhat unsophisticated industry that enables
you to play in the higher revenue opportunity,
higher value, higher margin parts of the
market. You're dealing with more
sophisticated clients. It's commercial parking
business serves several types of clients. No
single client accounts for more than 6% of its
sales. There are public parking
garages, the kind you might find downtown. There are hospitals and
universities, hotels, shopping malls and
office buildings, even cities. We worked for the NFL and
have managed all the parking and shuttle
bussing for the Super Bowl for over 20 years. So we have clients that
have really complex needs. And rather than
presume we understand, we need to really go to
them and say, help us understand what your
objectives are. And when we hear that,
then we come back to them with the solution that
is tailored to them. The company has contracts
for on street parking services with about 90
municipalities, including Los Angeles, New Orleans
and Atlanta. There's 3000 cities in
North America that have on street parking, and
we are one of the larger players in that space. Most of it has not been
outsourced yet. So we look at at the
opportunity to convince local government that
outsourcing to somebody like us, where we bring
the cutting edge technology to create low
friction payments, it's not coins in a meter. That hopefully is a
successful strategy for growth, just continuing
to do what we have done for a long time. Despite these successes,
parking management companies like Sp+ have
faced significant headwinds in the last
few decades. First, the rise of
Amazon and e-commerce, which led to the decline
of the shopping mall and the brick and mortar
retail industry, hurting the parking garages
often attached to stores and malls. There were
also threats from companies like Uber and
Lyft. Then there was the
pandemic. During the pandemic, total revenues
declined from almost $1.7 billion in 2019 to $1.1
billion in 2020, the lowest level since 2012. You often heard people
calling for the death knell of parking
management. You know, Amazon's going to kill
it. It didn't. Ridesharing
is going to kill it. It didn't. And the
pandemic is going to kill it. It certainly did
not. What we've seen is a shift in the way that
these management companies do business. Spe executives spent a
considerable portion of the company's Q4 2022
earnings discussing its investments in
technology. Really what's changed
since the pandemic is they've really
accelerated their investments into some
new growth areas or technologies that
certainly many other folks are not investing
in. And as of 2022,
technology solutions accounted for about 2%
of the company's gross profit. It expected them
to account for 10% by 2025. These solutions
include an app for customers to reserve
spaces ahead of time and pay for parking on their
phones and tech for changing prices as
needed, say, for time of day or for when there is
high demand. There is also tech for
charging cars automatically as they
enter and exit a lot. These investments, in
part have led executives to issue a bullish
outlook. The underlying parking management
industry is growing at a rate of 1 to 2%
annually, but SP Plus said in February 2023
they expect mid to high single digit growth over
the next several years. That's a big deal when a
public company changes their long term growth
outlook and it doesn't happen often. What we are finding with
technology is that we can deliver hardware and
software on a very competitive basis, even
in situations where we might not be a parking
operator right now. And so that makes the
addressable market for us larger than it used to
be. They aren't the only ones
making these investments. It's been remarkable how
many companies have been formed for payment
systems and reservation systems for for parking
facilities. I think it's a really
exciting time. Demand declines and
uncertainty about post-pandemic work. Living, shopping and
travel are top industry concerns. These
companies have to get creative. The pandemic
taught lessons. The operators, I think,
on the whole, realize that they had more
arrows in their quiver than we all thought. Parking management
companies now offer concierge services at
malls. They open doors at
hotels and provide wheelchair services at
hospitals. The parking garage may
be transforming into more of a mobility hub that
acts as a storage and service facility for a
number of types of vehicles, scooters,
bikes, Ride hail or EVs. Picture chargers at every
stall. Right. Maybe you don't
even need the parking, but you need the charge. So you're going to use a
parking garage. Parking garages are
already becoming a location of choice for
electric vehicle charging stations. So far, it is
a mixed blessing. It is both an exciting
time and a very risky time for us. We're being
asked to put in a tremendous amount of
infrastructure in our parking facilities to be
able to deal with all of the EVs that are coming
online. Some municipalities are
mandating very, very high numbers of those
chargers. It creates a tough situation where we
have spaces that could go unused and we have more
chargers than we have vehicles right now. The potential effects of
autonomous vehicles are tougher to identify, but
these vehicles will still need to be parked for
some period of time for charging, cleaning,
maintenance or downtime. Perhaps the autonomous
vehicles is not going to be a headwind in the
same way that some of these other trends have
been, but an opportunity for further ways to
monetize the space. I've designed several
Whole Foods garages and those folks are very
interested in delivering packages, food and even
Amazon packages in drones. And I think that
that's coming. And the parking world is
a good place for that because as our demand is
going down, the last place that gets parked
will be the roof of these facilities. Parking garages began
their history as full service facilities with
valets. In some ways, these
companies are returning to that route now,
realizing they must once again provide more
service this time to survive.
