Weighing leverage on a parking lot when the unlevered return looks fine but future demand does not

The demand question you can't model is partly answerable by asking the hospital. Do they lease spaces for staff, do they have a shuttle, are they building their own structured parking in the next five years? That last one would be the thing that hurts you and it's usually public in some form.

Plumb's point about hospital-built parking is the real risk and worth getting in writing before closing on anything like this. On structure, if debt goes on the deal, the covenants matter more than the rate at that yield. A DSCR test measured quarterly against parking income that swings with an event calendar and a weather month can trip on a bad quarter even when the asset is fine. Look at how income is defined, what cure rights apply, and whether there is a cash sweep. Also read any restriction on changing the use, since some loan documents limit exactly the redevelopment that gets treated as the floor case. Confirm all of it in writing with the actual lender, since terms move and nobody can speak to what is on offer this month.

Debt on cyclical revenue does one thing reliably: the payment shows up in the month revenue didn't. It's a pattern worth remembering from any business with seasonal cash flow. Parking revenue is more variable at the transient end than people expect.

$64k net on 64 spaces is $1,000 a space a year. That's low for three blocks from a hospital if the rate is anywhere near market. What's the monthly charge, and is the lot full? At 70% occupancy the debt question might really be a management problem priced at a 6.8% cap, and the fix changes the whole calculation.

That is the right question. From a lending standpoint, a lender on a small surface lot is generally sizing to the dirt as much as to the income, because the improvements are asphalt and a kiosk. That means the loan may come in smaller than the income coverage suggests, and it may come from a local bank with a five year term and a recourse guarantee rather than anything long. So the practical constraint could be that heavy debt is not on the menu regardless of preference. Asking two local banks what they would actually write on a deal like this, before deciding on a structure, tends to answer the question faster than modeling demand ten years out.

Moderate debt is usually the right call here, sized so the payment is covered by the monthly contract base alone, ignoring transient income entirely. If the contracts cover debt service, an unmodelable long-term demand question turns into an equity return question instead of a survival question. That is how private capital typically handles assets with a soft long-term story.

I hit my own ceiling by buying at yields like this all cash and running out of money to buy the next thing. Sable's coverage test is the version I'd use now. But windlass, you said the dirt is the floor and then didn't give us a land value. Three blocks from a hospital, what does the comparable unimproved parcel sell for, and is that number public where you are, because it isn't in every state? If the land is worth $700k of the $940k, this is mostly a land purchase with income attached and the debt question looks different than if the land is worth $300k.