Uncovered Parking Spaces

Understanding Uncovered Parking Spaces in Commercial Mortgages

Uncovered parking spaces are designated vehicle stalls located on a commercial property that do not have a roof, canopy, or any overhead protective structure. These spaces are typically situated on open-air asphalt or concrete lots and are fully exposed to environmental elements such as rain, snow, and direct sunlight. In commercial real estate finance, the presence and condition of these spaces are vital components of the property’s appraisal and underwriting process.

Lenders evaluate uncovered parking as a core utility of the asset. While they are less expensive to construct and maintain than structured parking garages, they play a significant role in determining the property's Net Operating Income (NOI) and overall marketability. Below is a detailed description of how uncovered parking impacts a commercial mortgage:

• Property Valuation: The "parking ratio"—the number of parking spaces available per 1,000 square feet of leasable space—is a key metric for lenders. If a property relies solely on uncovered parking, its valuation may be lower than a comparable property with covered or climate-controlled parking, as tenants often pay a premium for vehicle protection.
• Operational Expenses and Reserves: During the loan underwriting process, lenders will review the Capital Expenditure (CapEx) requirements for uncovered lots. Because these surfaces are exposed to the elements, they require periodic sealcoating, asphalt repair, and restriping. Lenders may require the borrower to maintain an escrow account to ensure the lot remains in good condition.
• Zoning and Compliance: For a commercial mortgage to be approved, the property must comply with local municipal zoning laws. These laws dictate the minimum number of parking spaces required for the building's specific use. Uncovered parking is often the most common way for property owners to satisfy these legal requirements without the high cost of vertical construction.
• Tenant Accessibility and Lease Stability: The quality of uncovered parking affects the weighted average lease term (WALT) and tenant retention. In regions with extreme weather, a lack of covered options may lead to higher vacancy rates, which increases the lender's risk profile.
• Collateral Assessment: During a Property Condition Assessment (PCA), inspectors will examine the drainage systems of uncovered lots. Poor drainage can lead to standing water or ice, creating liability issues and potential damage to the physical site, which are significant concerns for the mortgage holder.

In summary, uncovered parking spaces are a fundamental part of the property’s infrastructure. While they offer less protection than garages, their quantity and maintenance directly influence the Loan-to-Value (LTV) ratio and the financial stability of the commercial mortgage by ensuring the property remains functional and accessible for its intended commercial use.