$452M is top bid to lease parking assets of Pittsburgh

In an ironic twist, government and corporate pension plans could be part of a mix of investors involved in a lease of Pittsburgh parking garages and meters -- a deal designed to bail out the city's ailing pension fund.
A group of investors led by J.P. Morgan Asset Management and Connecticut-based LAZ Parking offered nearly $452 million for the lease, beating out two other teams in a two-tiered bidding process that culminated Monday.

The bidder is operating as Pittsburgh Parking Partners LLC, which described itself in a statement Tuesday as a consortium of "institutional investors" advised by J.P. Morgan and LAZ affiliate P4 Partners.

Pittsburgh Parking spokeswoman Shannon Baker declined to identify the investors, except to say in an e-mail that they're entities such as "government and corporate pension plans, insurance companies, endowments and foundations."

The partnership between J.P. Morgan and LAZ was a late entry after another LAZ partner dropped out, leading two city officials to question whether the bid should have been allowed.

Mayor Luke Ravenstahl proposed the parking lease with the aim of funneling at least $200 million of the proceeds into the pension fund. He said the infusion of cash was necessary to avert a state takeover of the fund at year's end. He wants City Council to approve the lease by Nov. 1.

Last spring, the city pre-qualified seven firms and teams to bid on the lease. At the time, the J.P. Morgan group and LAZ were competing for the deal. J.P. Morgan entered the pre-qualification process without any operating partner; LAZ was operating partner on a team with LambdaStar Infrastructure Partners of New York and Los Angeles-based Aurora Capital Partners.

However, by the time the city opened bids, the J.P. Morgan group and LAZ were on the same team, and the LambdaStar and Aurora names were absent.

LambdaStar and Aurora could not be reached for comment. "LambdaStar introduced LAZ and P4 Partners to the possibility of a parking public-private partnership opportunity in Pittsburgh, and encouraged LAZ to give priority consideration to the Pittsburgh market," Ms. Baker said.

When LambdaStar and Aurora decided to remove themselves from the venture, she said, LAZ and J.P. Morgan "sought and received the permission of the city and the city's financial adviser, Morgan Stanley, to initiate talks that ultimately led to their decision to join forces in pursuit of the Pittsburgh opportunity."

In a statement, the mayor's office said Tuesday that the J.P. Morgan /LAZ "combination was reviewed and approved by the legal team and helped to enhance the competitive nature of the process."

LAZ has operations in 99 cities, including the key role in Chicago's privately managed parking system. J.P. Morgan's previous infrastructure deals have involved electricity, water, wind and natural gas projects.

The unexpected emergence of a J.P. Morgan-LAZ team is a concern for some city officials. "I have questions about whether this group was actually a pre-qualified bidder," Controller Michael Lamb said.

Councilwoman Natalia Rudiak said the new partnership "raises questions" about the bidding process, while Councilman Doug Shields said the realignment violated the rules the city established for vetting would-be bidders.

Though seven teams were pre-qualified, only three teams submitted bids by the Sept. 13 deadline.
The J.P. Morgan-LAZ team offered $413 million, while EQT Partners and The Carlyle Group bid $391.5 million and $311 million, respectively. Because the two highest bids were within 10 percent of each other, the city ordered a runoff process that culminated Monday with bids of $451.7 million from the J.P. Morgan-LAZ team and $423.1 million from EQT.

Mr. Lamb said the top bid "is a number that is going to turn some heads on council." Despite the number, he plans to float an alternative proposal "within a week or so," he said.

"We would realize well over $1 billion if we continued to operate the garages on our own," he said, particularly if the city followed the parking rate increases that Mr. Ravenstahl has proposed as part of the lease plan.

The mayor's office has dismissed other alternatives to a lease, saying nothing else proposed so far would generate the large, upfront payment to boost the pension fund.

American Federation of State, County and Municipal Employees District Council 84 represents about 65 parking enforcement officers, collections officers and meter repair people who work for the parking authority. Its director, Rich Caponi, said those workers would remain authority employees under the lease plan, and their status would not change.

Nonetheless, his union opposes "selling public assets," or leasing them for decades, Mr. Caponi said, and is looking forward to seeing alternatives emerge in City Council.

About 60 garage workers and Teamsters members would become LAZ employees under the lease, and their union contracts would carry over until they expire in September 2012, said Marc Dreves, secretary-treasurer and principal officer of Teamsters Local 926.

"I've talked with Teamsters in Chicago that have worked with LAZ Parking. They have a good working relationship with them," Mr. Dreves said.

Private parking operators said the introduction of the highly aggressive LAZ to the Pittsburgh market shouldn't dramatically affect rates or operations at their garages.


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