Chicago goes with Morgan Stanley Group

I have been tracking the privitization deal the City of Chicago is working. At one time up to 13 groups from all  over the world were bidding on the four downtown city owned garages. It will be a 99 years lease and the successful group, led by investment bank Morgan Stanley and Laz Parking, will pay over $500 million for the lease. 

I have contacted my sources and will report as more information becomes available. Following is the official news release from the City:

Mayor Richard M. Daley announced today that the City and the Chicago Park District have accepted a bid of $563 million from the Infrastructure Group of Morgan Stanley Investment Management for a 99-year concession sale and lease of the parking system comprising the four parking garages beneath Grant and Millennium parks. Morgan Stanley is a global financial services firm. $122 million of the proceeds would pay for capital improvements in parks in neighborhoods across Chicago. The rest would be used to pay Park District operating expenses, retire debt and rebuild Daley Bicentennial Plaza when the parking lot beneath it is reconstructed. “We think this is an outstanding deal for the taxpayers of the City of Chicago

,” Daley said at a City Hall newsconference. “It allows for a massive shift of capital resources from downtown parking garages to neighborhood parks throughout the city. We’re receiving more than $61,000 for each of the 9,178 parking spaces, which is among the highest prices per parking space ever paid in theU .S.”

Chicagoh as been a national leader in innovative financial management. The $1.83 billion lease of the Chicago Skyway, completed in January, 2005, has been a model for state and local governments around the nation. Morgan Stanley, which has an equity capitalization of $80 billion, was the high bidder among the teams that submitted statements of qualification. The four garages will be operated by Laz Parking of Hartford, which manages more than 250,000 parking spaces in 13 states.

 The concession sale and lease of the public parking system is the first of its kind in the country. It covers the Grant Park South, Grant Park North and East Monroe Street garages, which are owned by the Chicago Park District, and the Millennium Park garage, which is owned by the City. The proceeds from the sale would be allocated in this manner:

• $122 million for Chicago park improvements;

• $120 million to be placed in reserve to generate income to replace the Park District's annual parking fee income of approximately $5 million;

• $278 million to pay off all debt associated with the garages;

• $35 million to rebuild Daley Bicentennial Park when the East Monroe Street garage is re-built by the lessee; and

• $8 million for banking, legal, and transaction fees.

By turning over the garages to a new operator, the City and Park District will be relieved of the responsibility to maintain and rebuild the garages throughout the lease term. The lessee also will assume the cost of reconstructing the East Monroe Street Garage, which must be done soon and is expected to cost $65 million. The cost of rebuilding all the garages, which is the responsibility of the lessee, is expected to exceed $550 million over the life of the lease.

 The lease requires the operator to maintain high standards of safety and maintenance and comply with the living wage ordinance, residential preference, and MBE/WBE  requirements.

 “The lease of these garages is another example of the City and its sister agencies working together to find creative ways to fund worthy projects at no cost to the taxpayer,” said Timothy Mitchell, General Superintendent of the Chicago Park District. “The lease will allow the Chicago Park District to preserve the $5 million in garage net revenues which support operations and programs in neighborhoods citywide, while funding an ananticipated $122 million in capital improvement projects.”

If the Chicago City Council and the Chicago Park District Board approve the transaction, the expected closing date would be December 15. “I strongly urge the Council to approve this lease, because it’s a good deal for everyone,” Daley said. “It will provide continued convenient parking and excellent service to the thousands of people who use these four garages. And it will provide millions of dollars of improvements for Chicagoans of all ages who use the Chicago parks and participate in the many excellent programs operated by the Chicago Park District.”

At first blush, the bid seems a bit low to me.  Although you must consider that it is actually over a billion if you consider the committment to rebuild the garages over the life of the lease.

JVH