The redevelopment language in a garage operating agreement is doing a great deal of work
Here is a document worth reading closely, with LP paperwork for a 400-space garage in a mid-size downtown at roughly $18M total capitalization as the example. Assume no prior parking experience on the reader's side, because the questions underneath are basic ones that deserve plain answers. The deck says the appeal is the income plus the land underneath. Fair enough. Then the operating agreement says the manager may cause the company to sell the property to an affiliate of the manager at a price supported by an appraisal from an appraiser selected by the manager, without member consent, and that a sale in connection with a redevelopment is expressly permitted. So the thing the marketing calls optionality is, in the document, a path for the sponsor to move the asset into a different entity he also controls, at a number an appraiser he hires supports, with the members cashed out at that number. Three questions come out of that. First, when people say a parking asset has redevelopment optionality, what does that look like as an actual event? Does somebody entitle the site first and then sell, or sell to a developer who does the entitlement work? Second, is an affiliate purchase clause normal in this asset class, or does it show up because parking specifically is expected to become something else? Third, the waterfall pays an 8% preferred return and then splits, and a separate clause gives the manager a fee on any sale. If the sale is to himself, he collects that fee for selling to himself, which looks odd on its face. With a soft commitment deadline about three weeks out and one 30-minute call with the sponsor, the useful exercise is deciding which three questions that call is actually for.
