Downtown Parking System Has Lost $30M, Office Vacancy Rates Near “Great Recession” Levels

11/20/24 Note: This article has been corrected. Stephen Lange Ranzini is the president of University Bank not Bank of Ann Arbor.

by P.D. Lesko

Oxford Companies and Crawford Hoying, partners in the Ann Arbor South apartment building development project, recently asked Ann Arbor to build, own and operate three new parking decks in the area around Ann Arbor South (Briarwood). It is estimated that the City’s costs would approach $110 million, to start. It’s little more than a scheme to squeeze a parking subsidy out of taxpayers, said a former Ann Arbor City Council member. It is not only ecologically regressive to construct three new parking garages in a city trying to reach zero carbon emissions within 48 months, the addition of three parking garages could result in even larger annual losses to the already foundering Downtown Development Authority’s parking system.

Due to a present 25 percent decline in parking facility usage resulting in annual Parking Fund losses, if the DDA were to run through its reserve fund (savings) in order to take on more construction debt, higher loan payments, higher fixed and variable operating costs, it could find itself in the position of having a structural deficit. The City, instead of receiving millions each year from the DDA, would be forced to divert millions of General Fund dollars to keep the parking system afloat.

The General Fund pays for citizen services such as Police, Fire, parks and pools, as well as the employees who answer resident phone calls and emails.

The South Ann Arbor developers want parking garages in a TC1 zoned area. The new T1C zoning was pitched as necessary to encourage density and expand “sustainable, transit-oriented, mixed-use development.” The developers’ trio of parking garages is the antithesis of what T1C zoning was promised to do when passed by City Council. According to data from the Institute for Transportation and Development Policy, parking garages “compound stormwater pollution and runoff — issues which will be exacerbated by intensifying weather events. Parking policy reform is one crucial strategy for cities to tackle climate change, in addition to make walking, cycling, and public transit infrastructure more appealing, affordable, and accessible for all.”

The City’s parking system lost $30 million between 2020-2023. Where have all the parking garage users gone? Swisher Real Estate has a possible answer to that question, and it’s an answer that should give elected officials and the DDA Board members a cold grue.

The most recent commercial real estate vacancy data provided by Swisher Real Estate reveal a downtown Ann Arbor with a commercial vacancy rate of 15.1 percent. That’s only nine-tenths of a percent below the 16 percent vacancy rate Swisher Real Estate observed during the Great Recession of 2008-2009.

“Office will never come back,” says local University Bank President Stephen Lange Ranzini. He thinks one possible solution would be to convert office space to residential space, “however that’s hugely expensive.”

While the DDA loses money on the parking system, and commercial real estate vacancies approach levels not seen since the economic downturn of 2008-2009, City Council members fiddle with passing resolutions that guarantee workers the right to sit down, the design of a new City flag, giving the City Administrator (who is on the DDA Board) a $30,000 retroactive raise and an $8,400 bonus, and changing residential zoning to allow home-based cafes.

Politically-Connected Developer Asks for a $110 Million Taxpayer Parking Subsidy and Then Some

The politically-connected owner of Oxford Properties is planning a new apartment housing development project in which the majority of the apartments will be priced at market rates; just 1/5th of the units will be set aside as “affordable.” The Chair of the Ann Arbor Planning Commission, Wonwoo Lee, is Oxford’s Chief Real Estate Officer. Since 2009, Oxford CEO Jeff Hauptman has been a donor to Ann Arbor Mayor Chris Taylor, as well as Taylor’s political allies on City Council. Taylor appointed Wonwoo Lee to the Planning Commission in 2020, and City Council members unanimously approved the appointment.

In 2022, Taylor and his Council allies rezoned the land around Briarwood Mall for “transit oriented development (TC1).” As for local real estate owner Jeff Hauptman, research suggests the rezoning increased the value of his over $130 million in holdings by as much as 50 percent. It’s quite the return on his investment in the form of political donations to local candidates, including the Mayor, who voted to set into motion the rezoning Hauptman’s properties. TC1 zoning was sold to the public as “sustainable, transit-oriented, mixed-use development.”

In Nov. 2023, Ward 1 Council member Lisa Disch was quoted as saying: “It [TC1 zoning] does not allow for the kind of surface parking that’s there. And so if you are going to have a taller building, you are going to need more parking, especially if it’s mixed use, and that means that you are going to have to build structured parking either underneath or somehow inside your building, and that’s expensive.”

Not if you can get elected officials to vote that the Ann Arbor taxpayers should build three new parking structures for your development, and pay for the structures’ operation and maintenance in perpetuity.

Former Ward 3 Council member Stephen Kunselman, in a comment posted to a Facebook local politics page said: “Parking revenues are down due to empty parking spaces all day long downtown. If there was money to be made parking, Briarwood could have done so with their vast empty parking lots. The Library Lot Underground parking structure cost over $50 million and it’s never full during the day – its loan payments are still being made. Parking structures are a money losing enterprise and that’s why the developers want a public parking subsidy.”

A look at the budgets of the Ann Arbor Downtown Development Authority, controlled by a group of political appointees, shows that what was once the goose that laid the golden egg, has turned into a perennial Bad News Buffet money loser.

In answer to the question of “how the parking system has lost so much money over time (before and after the pandemic),” The DDA’s Executive Dir. Maura Thomson offered some insights.

Ann Arbor’s Parking System Usage is Down 25 Percent and Metered Parking Rates Are Up 38 Percent

“We are currently approximately 25 percent below pre-pandemic levels. However, the system had a healthy level of fund balance (savings) going into that unprecedented and unforeseen event, which allowed us time to adjust to the new activity levels and do a thorough analysis of our rate structure after the dust settled,” said Thomson.

Thomson shared information about the city’s parking rates over the past decade. City Council used to vote to approve parking rates proposed by the DDA, but in 2010 Council voted to give authority to raise parking rates to the unelected members of the DDA. (The City Administrator is a member of the DDA Board.) The result has been metered parking rates that rose from $1.60 per hour in 2015, to $2.40 per hour in 2024. During the same period, hourly parking rates at seven of the eight City-owned parking structures, rose from $1.20 per hour to $1.50 per hour. The lot at South Ashley saw its $1.50 per hour rates in 2015 rise to $2.40 per hour in 2024.

Metered parking rates in Oak Park, IL located just outside of Chicago, cost $1.00 per hour ($.25 cents per 15 minute increment). In Madison, WI the on-street parking metered rate is $2.00 per hour. City owned parking garages in Madison charge $1.50-$1.80 per hour. In college town Providence, RI metered parking costs $1.25 per hour.

“The activities of the parking system are accounted for in two funds – the DDA Parking Fund, and the DDA Parking CIP Fund,” said Thomson. “The Parking Fund accounts for the administrative, operational, and debt service activities of the system. It is primarily funded by parking fees. The Parking CIP Fund accounts for the capital maintenance and improvement activities of the system. It is primarily funded by transfers from the Parking Fund.”

The City’s parking system usage drop represents a multi-million dollar hit to the DDA Parking Fund and, in return, the Parking CIP. It’s a loss of revenue that can’t be sustained by using savings, and can’t be made up for by simply hiking parking rates.

Feeling the “Pinch”

Just as downtown restaurant owners have bemoaned a lost “lunch rush” due to the fact that more employees of downtown businesses are working remotely, the DDA is feeling the same pinch.

“You mentioned that you are trying to understand how the parking system has ‘lost so much money.’ The system did suffer a loss of revenue during the pandemic and the ensuing years.” Thomson continued, “The Parking CIP Fund is a capital improvement fund, and it is normal for funds of this type to build fund balance in some years and spend it down in others, as project needs require.”

However, Ann Arbor’s parking system has reached a financial tipping point whereby the tax-increment finance skim based on the taxable value of downtown parcels and parking fees are increasingly unable to support the system’s variable and fixed expenses, including the costs of the underground Library Lot construction, which the DDA is still paying off.

A close look at the annual Swisher Real Estate Office Report that documents office space vacancy rates in the downtown area (and throughout Ann Arbor) shows between January 2022 and January 2024, “the total market vacancy rate for office space in downtown Ann Arbor rose from 11.3 percent to 14.6 percent, a 22.6 percent increase. This increase corresponds almost exactly to the 25 percent drop in parking facility use the DDA’s Maura Thomson says has occurred.

According to the Swisher report, in downtown Ann Arbor there are 67 commercial buildings with 1.68 million square feet of available rental space. With 255,087 square feet of space unrented, the downtown office vacancy rate is currently 15.1 percent. That office vacancy rate is just shy of the 16 percent vacancy rate Swisher reported at the height of the 2008-2009 Great Recession.

In total, Swisher reports Ann Arbor has 231 commercial buildings throughout the city in which there are 8.46 million square feet of available office and flex rental space. Swisher’s Report shows that, in total, 15.2 percent of that space is unrented, up from 12.5 percent the previous year.

According to the Swisher Report, “Flex Space” has seen the largest increase in vacancy rates. January 2022 and January 2024 vacancy rates for this kind of commercial space, space that can be used for a variety of purposes including office, retail, and warehouse space, jumped a whopping 5.6 percent. Total vacant flex space in the downtown area rose from 7.1 percent to 12.7 percent. At the height of the 2008-2009 Great Recession, 18 percent of Ann Arbor’s total commercial space sat empty.

“Office Will Never Come Back”

If, as bank president Stephen Ranzini says, “Office will never come back,” is the answer to the DDA’s falling parking usage downtown to build, operate and maintain three new parking garages on the periphery that would cater to apartment dwellers who rent Hauptman’s units in the Ann Arbor South development? Would apartment dwellers provide the same level of parking demand as office workers, in a TC1 zoned transit corridor? Should the City encourage car usage and parking in TC1 transit corridors?

In Minneapolis, developers have been encouraged to offer fewer parking spaces when developments are near public transit. According to an article published by the American Planning Association:

“The usual ratio of one parking space for every one unit was cut in half for larger apartment projects and was eliminated entirely for projects with 50 or fewer units located near high-frequency transit. Lo and behold, the market mostly responded in the exact ways planners had predicted. Apartment developers proposed projects with fewer parking spaces. That lowered the cost of construction. So, such projects began offering rents below the market’s established levels. New studio apartments, which typically went for $1,200 per month, were being offered for less than $1,000 per month.”

What Hauptman is asking Ann Arbor to do is to subsidize his construction of market rate apartments and lower his costs of construction by building three new parking garages to service his development. It’s an ask that is antithetical to the goals of the smart growth movement, and has no upside for the creation of affordable housing in the significant numbers needed by the City of Ann Arbor (500 new units per year).

The bottom line is that the DDA’s financial woes might also be the result of shifting attitudes about how people get themselves around cities of all sizes.

According to the American Planning Association: “Green Street Advisors, a commercial real estate advisory firm, analyzed what it calls the ‘transportation revolution’ — encompassing ride-hailing services, driverless cars, etc. — and estimated that U.S. parking needs could decline by 50 percent or more in the next 30 years. In the old days, you built an apartment and you expected it needed two cars,” says Doug Bibby, president of the National Multifamily Housing Council, an apartment trade association in Washington D.C. “Those parking ratios are outdated and no longer valid in any jurisdiction.”