Stephen Dubner is hard done by

Stephen Dubner, co-author of the global bestseller Freakonomics

and resident of the Upper West Side of Manhattan, is

not happy with his lot. Turns out he’s part of that small minority of Manhattanites

who owns a car, and he feels that not enough is being done to make his car-owning

life easier. What would he like to change? He would like to be able to buy a

parking spot. He would like some form of residents’ parking on the UWS so that

he can park there for free while other people can’t, increasing his chances

of finding a spot. And he would like to be able to park in front of fire hydrants.

Weirdly, I feel no pity for Dubner’s sorry state whatsoever. For one thing,

the commenters on his site have done a very good job explaining why people shouldn’t

park in front of fire hydrants. Says Dubner, with his habitual overconfidence

that anything he thinks must, therefore, be true: "The firemen only need

to hook the hose up to the hydrant, and a car parked by the hydrant certainly

doesn’t interfere with that." I think that "certainly"

maybe doesn’t mean what Dubner seems to think it means, as this

photo clearly demonstrates. Fire hoses need to go straight into the hydrant,

and if a car is parked in front of the hydrant, that basically means they have

to go straight through the car.

As for buying parking spaces, Dubner hilariously says that he has "long

wondered why some entrepreneur hasn’t turned a NYC parking garage into

a co-op". Yes, that’s right, a co-op. Because of course we couldn’t

have just anybody buying a parking space: they would have to go through the

co-op board first. Can’t have some crappy old Ford truck next to my Porsche


In any case, Dubner seems to have utterly missed the entire business model

behind parking garages, which is that they quietly sit there, making a relatively

modest amount of money with very little in the way of hassle or expense or property

taxes, until such time as the owner decides to cash out to a property developer.

So clearly you can’t sell individual spaces in perpetuity, because then you

would lose your exit strategy and your opportunity to make an enormous profit

on the land.

Then, of course, there’s free on-the-street parking, a system which abuses

abuses! – honest taxpaying millionaires like Mr Dubner:

NYC residents like me get abused by the current free-parking-on-the-street

system. Why should someone who, say, lives in New Jersey and works on the

Upper West Side get to park for free on my street when I pay local taxes and

he doesn’t?

Is it maybe because public parking is for the, um, public, and not

just for people who can afford to live on the Upper West Side? In any case,

Manhattan’s car owners get an incredible deal already. Every time they park

their car on the street for free, they get exclusive use of roughly 160 square

feet of prime Manhattan real estate for nothing. They can store all manner of

stuff in their car(s) – storage space which would cost many thousands

of dollars if you had to pay for it. And they get very easy access to transportation

anywhere in the city, while the rest of us have to schlep to the subway or wait

for a bus or try to find a taxi.

Think of a European city like Utrecht

or Munich. There are many

fewer cars parked on the street than you see in Manhattan, and instead the roads

have wide and well-maintained bike paths. Now imagine all the space given over

to free car parking in Manhattan used instead for bike paths and bike parking,

remembering that you can easily have parking

for a dozen bikes in one parking space.

Who would benefit from such a plan? Most New Yorkers, since biking around the

city would stop being a very dangerous proposition and start being by far the

easiest, fastest, and most efficient way of getting from A to B. Who would lose

out? The relative handful of residents who also own cars. The cost-benefit analysis

is clearly positive, but don’t expect a "freakonomist" like Dubner

to buy it (or, it would seem,

New York City Transport Commissioner Iris Weinshall). After all, look at the

pain Dubner’s in already!

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17 Responses to Stephen Dubner is hard done by

  1. Gari N. Corp says:

    Dubner does sound a little bit whingey to me. But I’d just like to take a small issue with you on the parking garage business – some investors think parking garages are quite the earner, including this year’s rock stars of finance . Which isn’t to say that the business model is open to Dubner’s spot-selling idea, just that it isn’t entirely a real estate play.

  2. miss representation says:

    I know that between Dubner, the crazy hair guy and Mr. Long Tail, they know everything, but perhaps someone should show Dubner what the wrench looks like that opens the valve of a fire hydrant (which is the top). It’s about seven feet long, and it attached in the middle, enabling two firefighters to simultaneously apply force to open the valve. Then drawn him a diagram showing what a 42 inch radius around a hydrant requires.

    Lastly, if I had the footage, I would show him what happens when you park in front of one when there is a structure fire: a very frustrated firefighter starts whacking at your front end with a seven foot long iron wrench until enough of the front end is removed from your car to allow the rotation necessary to open a hydrant valve.

    Oh, and parking garages are fabulously profitable in Manhattan, That’s why they are prohibited south of 96th street (unless you are Jerry Seinfeld): they are so lucrative they would overtake residential development in all but the most overheated markets.

    Show me a single car commuter who attempts to rely on street parking. The sweeping rules make it effectively impossible to park as a commuter. On street parking is a subsidy that is the exclusive entitlement of slackers and freelancers like me.

  3. David Sucher says:

    “So clearly you can’t sell individual spaces in perpetuity, because then you would lose your exit strategy and your opportunity to make an enormous profit on the land.”

    Why can’t selling individual spaces be the exit strategy? What would is the market value of a parking space in Manhattan’s UWS? There must be comps.

    Then what are parking garages selling for? Net Operating Income X Cap rate?

    Have you run the numbers?

  4. Roger says:

    In the UK and Germany (at least) it is common for some on-street parking to be reserved for local residents who pay a modest fee for a permit. And this is widely seen as fair. Note: it would not allow the equivalent of an UWS resident using it to park downtown.

  5. Roger says:

    In the UK and Germany (at least) it is common for some on-street parking to be reserved for local residents who pay a modest fee for a permit. And this is widely seen as fair. Note: it would not allow the equivalent of an UWS resident using it to park downtown.

  6. Matthew says:

    “Note: it would not allow the equivalent of an UWS resident using it to park downtown”

    Indeed when I lived in West Hampstead it let you park only on the street you lived; in Kensington and Chelsea it lets you park anywhere in the borough, but this is unusual.

  7. dsquared says:

    Why can’t selling individual spaces be the exit strategy?

    Because when Donald Trump decides he wants your site, the last thing he wants to hear is “now let me call up all thousand of my tiny investors, each of whom owns a couple of square yards, I am sure that there will not be one single crank or greenmailer among them”. The one golden rule of the property game is that you consolidate ownership, you don’t fragment it.

  8. David Sucher says:

    Dsquared is dead wrong to state that “[t]he one golden rule of the property game is that you consolidate ownership, you don’t fragment it.” It may sound clever but it does not reflect the real world of real estate, at least in the USA.

    People have made a great deal of money by fragmenting larger properties into smaller ones, both new construction and conversions.

    There are tens of thousands of examples of investors buying an exisiting apartment building, converting it to condominiums and then selling off each individual apartment. You can see the same pattern in marinas for pleasure craft. It is also being done with office buildings. Subdividing a large tract into small lots and selling them off has been done for hundreds of years.

    My point was why that couldn’t be done for a parking garage? (And in fact I would be surprised if it wasn’t happening.) You buy a large garage and sell off individual spaces to individuals. In a tight market like NYC it might very well work. I know for a fact that in many condominiums some buyers are able to and do purchase additional parking spaces above the ones which may come with their flat. And they may be transferred independent of the apartment. So there is a market for ownership of a parking space.

  9. David Sucher says:

    Uh…apparently parking spaces have been for sale in New York City for years. It only took me about ten seconds to google this:

    “But in 1986, with the garage steadily raising its parking rates, he read about a free-standing six-story garage whose parking spaces were to be sold as condominiums. Since buying a parking space essentially meant having it as long as he wanted, Mr. Friedman took out a bank loan and bought one of the condo spaces for $29,000.”

  10. David Sucher says:

    London too:

    “We can all stop complaining about our mortgage payments, because at least they’re paying for a roof and somewhere to plug in the TiVo. This parking space in Knightsbridge, U.K. only offers its owners a “very hard layer to park your car” for ߣ80,000 or over $147,000 US.”

  11. Felix says:

    Let’s exclude parking spaces which can be bought only by tenants of the buildings which they’re part of — that makes perfect sense, and it’s not a case of making money by buying a parking garage and then selling it off piecemeal as parking spaces.

    David, the NYT article you point to does say that the example you’re talking about was the first in New York State. It’s also in Brooklyn. And it doesn’t show any other examples. And — and here’s the kicker — the parking spaces didn’t even sell out, let alone rise in value: in fact, they fell in value, even as real estate in general was skyrocketing.

    The point is that you make money by selling stuff for more money per square foot than you bought it for: what you want to do if you buy a lot is to maximise its value per square foot. Clearly, if you put up an office block or a luxury apartment building where a parking garage is, the value per square foot is going to be much higher than if you sell that parking garage off as parking spaces. What’s more, you’ll probably increase your total number of square feet, as well.

    So the only time when it makes sense to sell a parking space is if that parking space can only ever be a parking space — which is the case in your Knightsbridge example — nothing else could ever be built there, since it’s already in a residential building.

    To upsum: if you own a parking garage, you’d have to be mad to sell it off as individual parking spaces. Much better to rent it out to someone like Macquarie, who can make their own money running it as a garage. Then, if and when the time is right to convert to something more valuable, you do so.

  12. David Sucher says:


    I was responding to the idea that parking garages have no exit strategy except to sell them to a developer. (As well I was responding to Dsquare’s very odd suggestion that there is no money in fragmenting ownership but only in consolidating which is obviously untrue both in real estate and in corporate restructurings.)

    OK, you believe that there is no exit strategy except to hold and to eventually sell to a developer who will transform the property by tearing it down (or maybe reusing the structure with a different use.)

    I disagreed and offered the example of condominiumiizing it. Whether it works in every instance is irrelevant. Converting an aprtment building to condos doesn’t work in every situation.

    It depends on local market conditions; what you say may well be true for NYC, (though as I read the article there is tremendous demand to buy parking spaces.)

    The only way to get an answer to this is a market survey. It’s not a question to which there isa theoretical answer as it depends on too many variables such as zoning and the personality of the owners.

    (The largest hidden — to most people — issue in real estate is that it is not a fungible commodity in which the market is totally “rational.” Far from it. It is very often a mom-and-pop business with very personal dynamics and it doesn’t always act as one expects.)

    I simply don’t see your last para as a general rule. You have to do the math for every deal. In general, when you sell off an income property in fragments (to use Dsquare’s term) you get a cap rate far lower than you would by capping the cash flow. There is an increment of value which attaches to owning. The best example is in houses where a $500,000 house might only rent for $2 thousand per month, which is why detached houses usually make no sense on a cash flow basis. So I can see a situation in which there might well be more money in selling off parkings paces now than selling to a developer in the future. You just have to do the math for that property.

  13. Felix says:

    Well, yes, every real estate deal is unique, and I’m sure if we thought hard enough we might be able to come up with some kind of situation where what you’re talking about makes sense.

    But it wouldn’t be easy.

    Why? Well, the main reason is not so much the exit strategy as the entry strategy. In order to condominiumize an apartment building or a parking garage, you have to own it in the first place. Apartment buildings have a value, normally a function of their rental income. So if condos are more valuable than the rental income on the same space, it can make sense to turn rental units into condos. So far no problem. But when you look at garages, the market value of a parking garage is almost completely unrelated to the rental income that can be generated from parking operations. Rather, the value of the garage, at least in New York (where the demand for condo parking spaces does exist) is almost entirely a function of its zoning, air rights, etc. Given that there’s no “parking garage” zoning, that space can always be used for something more valuable on a per-square-foot basis, even if all the air rights have been sold.

    You say it might make sense to condominiumize a parking garage today rather than sell to a developer in the future — my point is that you’ll always find a developer in the present who’ll be happy sitting on the garage until he either develops the lot or sells to that hypothetical future developer. And that developers in the present pay more money than people wanting a permanent parking space for their cars.

    And that’s almost certainly true outside NYC too, if only because demand for condo parking spaces outside one’s own building surely plunges outside NYC.

    And in any case, the only reason that people own parking garages in the first place is because they’re a real-estate play. Yes, operating parking garages can be profitable, but the value of the real-estate option is simply too high to give up for an immediate cash payment, even assuming that the parking garage would sell out if it were condo-ized (the one in the NYT article didn’t.) Remember the anecdotal demand in the NYT article was always from residents of the buildings where the parking spaces were. Without such residents, demand naturally falls.

  14. David Sucher says:

    You are saying that a parking garage in NYC is priced as raw land? That the value of the raw land is always (with rare exceptions) going to be higther than the capitalized value of the income stream from parking?

    Well maybe it’s so but it is all very counter-intuitive i.e. the parking rates in “mid-town” (or so it appeared to me) Manhattan seem surprisingly low. At

    I found rates in the $3-4 hundred/month range…only $10-14/day.

    Considering the value of the housing and how people love their cars (even in NYC) I was amazed. Maybe it’s the amount of public transport? I wonder.

    I still have questions, however. With such a low rate of return why would anyone ever buy a parking a garage? As an investment? If property is ripe for development everywhere in Manhattan below 110th Street, how could anyone buy one? Are investment sales very rare? Is no one building free-standing purpose-built parking garages in Manhattan? Are the old garages legacies from the 20s?

    I guess I’d just have to see some comps before I could understand it.

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