Fund on road to profit with parking lots

As the nation's automobile ownership expands, there simply aren't enough places to put those vehicles

Fund manager Mark Cho believes the best place to park his funds in China is in parking lots.

Parking lots are in increasingly short supply, with the number of cars on the road having surged by five times since 2003 to 137 million at the end of last year, second only to the United States. The Ministry of Transport has forecast that by 2020, the number will reach 200 million.

Cho and his 30 fellow managers at Huibo Parking Management, a fund that oversees the equivalent of $339 million, believe the mismatch makes parking lots a uniquely valuable asset with potentially high returns. The fund is the first of its kind in China.

Since launching on July 1, the fund has invested 10 percent of its assets in five parking facilities in Beijing, Shanghai and Hangzhou, cities where Huibo already has offices.

Cho, who has been a fund manager for more than 10 years, said he is confident that the fund's returns will be higher than the 3 to 5 percent average for commercial real estate in China. The fund has a maturity of eight years, and all the funds will be invested in the first four years. "Parking lot investment has huge potential in China, and we're poised to cash in on it," said Cho.

According to a report published in July of last year by Yan Chaobo, an analyst at market research firm Forward (Qianzhan) Intelligence Co Ltd, China had fewer than 30 million parking spaces.

Urban planners around the world believe there should be 1.2 to 1.4 times as many parking spaces as vehicles. By that standard, China should have at least 164 million parking spaces. The 30 biggest cities in China have an average parking lot shortage of 57.7 percent, according to a survey published last month by website Chinaparking.

In downtown commercial areas, such as shopping malls and office buildings, parking spaces are at a premium. In Shanghai, the parking lot at centrally located Raffles City is generally full. "I have given up on driving there," said Sun Zhong, who is a member of gym at the mall. "Parking is a hassle in Shanghai, and not just downtown. People fight for parking slots in my neighborhood, too."

Huibo takes an active role in helping public transport hubs and buildings of all kinds solve their parking problems. It can work with proprietors at all phases of a project, starting with design and construction. It can also make investments to revamp existing parking facilities, bringing in management skills and new equipment to raise a parking facility's capacity. Huibo prefers to hold a stake in every project that it participates in, but it can also provide management for a fee.

On average, Huibo's involvement will raise a parking lot's usage by 20 to 30 percent. In some cases, capacity can be doubled, according to Cho. But severe as China's parking shortage is, not every parking facility can make an easy profit. In Nanjing, the capital of Jiangsu province, a new facility downtown was built at a cost of 30 million yuan ($4.87 million). But it has an occupancy rate of only 5 percent for its 200-plus parking spaces.

"Chinese drivers have their own preferences on parking," said Cho. "One of them is that they like to park close to where they are going, much more so than drivers in other countries." The rule of thumb, he said, is that a parking lot should be located within a radius of 300 meters of a major commercial facility for it to be commercially viable. While companies such as Huibo can help improve the country's parking problem to some extent, to change the overall picture, the government has to take the lead, said Cho.

According to analysts, the main cause of the parking shortage is that the nation's urban planners didn't fully realize that China's auto market could grow so fast. The government needs to amend planning regulations to ensure new properties have more parking space, and it should also give financial incentives to expand parking facilities at existing buildings.

Some cities are already taking action. Under a rule in Shanghai that takes effect on Sept 1, new residential properties within the inner urban area must have parking spaces equivalent to 80 percent of the number of apartments. According to Chinaparking, 25 of 30 cities it surveyed have made detailed long-term plans to add more parking lots.