Nuevos Ministerios Parking

Prompt
Our client is a company that manages parking lots. They want to buy the parking lot in Nuevos Ministerios
(show Exhibit 1). They want to know how much they should bid for the parking.

Additional information
▪ From Exhibit 1:
o There are many different business offices around the parking, such as EY, Savills, WeWork, etc…
o The parking lot is in front of El Corte Ingles, a very large department store
o The other side of the street (Castellana) is comprised mostly of smaller retail stores
▪ The client is looking for a 5% annual return

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Potential framework
▪ Financial analysis of the parking
▪ Annual revenues
▪ Will depend on the # of cars parked, hours parked and days parked in a year
▪ Annual costs
▪ Consider Fixed Costs such as maintenance and labour, possibly no Variable Costs
▪ Valuation
▪ Consider the annual profit of the parking and calculate the price based on the 5% annual return rate
▪ Capabilities and risks
▪ The client probably has the capabilites as they already own other parking lots

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Financial analysis of the parking
Additional information (to be given only if asked by the candidate):
▪ Revenues:
▪ Size of the parking: 60m x 60m
▪ Parking hours: 7am – 11pm
▪ Parking is open 7 days a week, 50 weeks a year
▪ Price of the parking: €3 per hour
▪ Costs:
▪ (Ask candidate first what costs would they expect)
▪ Fixed costs account for 45% of revenues
▪ Can assume that there are no variable costs

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Financial analysis of the parking
Candidate’s assumptions are colored in blue.
Revenues calculations:
▪ Each car occupies 2m by 5m (considering road in the middle) → 60m / 2m = 30 car rows; 60m / 5m = 12
car columns → 30 x 12 = 360 parking spots
▪ Occupancy is 80% in the weekdays and 50% on the weekends (on avg. considering all parking hours) →
weighted average = 70% occupancy
▪ Avg. parking spots used in a day = 360 x 70% = approx. 250 → 250 x 7 days x 50 weeks = 87,500 cars
parked for a full day
▪ Daily price: €3/hour x 16 hours = €48
▪ Revenues = €48 x 87,500 cars = €4.2 mln

Profit calculation:
▪ Since costs are 45% of revenues, then the profit margin is 55% → €4.2 mln x 55% = €2.31 mln

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Price valuation
Additional information:
▪ Ticket prices are expected to remain stable in the future (we do not take inflation into account)
▪ The client expects a 5% return

Valuation:
▪ Take the yearly profit, which we expect to remain stable in the future, and divide it by the rate of return →
€2.31 mln / 5% = €46.2 mln

The candidate should give a judgement on the price, possibly considering:

▪ Price with respect to client’s current size (revenues and/or profit) and available capital/ financing abilities
▪ Possible effect of cost synergies given that the group is a company that manages parking lots
▪ Possible effects of other players also wanting to buy the parking lot
▪ Possible effect of expanding the parking by creating an underground parking

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Bid of a new player
Tell the candidate that there has actually been another bid for the parking for €150 mln. What could be
some reasons for this high bid?
▪ The player could be considering the expansion into an underground parking
▪ The player could be considering revenue synergies with the neighboring offices and department store

Reveal that the other bidder is El Corte Ingles (the large department store).

Our research team had calculated that if our client were to invest in the underground parking then the
valuation of the acquisition would be of €110 mln. What could be some reasons for El Corte Ingles’
higher bid and is it reasonable?
▪ The department store is probably considering revenue synergies with its clients due to the location of the
parking
▪ A 26% increase in the valuation sounds reasonable considering the size of the department store

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Exhibit 1

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