WORKING TOGETHER:
PUBLIC/PRIVATE PARTNERSHIPS
Robert Wulff, Senior Vice President, B.F. Saul Co.
Prepared for Prince George’s County Planning Staff
July 18, 2012
WORKING TOGETHER:
PUBLIC/PRIVATE PARTNERSHIPS
• Why are there Public/Private Partnerships
• Prepare for the Public/Private Partnership
• Public Sector Strategies and Tools
Why are there Public/Private
Partnerships?
From Public Perspective
• Inadequate Public Resources to Provide Public
Good/Services (i.e., Lack Funding and/or
Expertise)
- Public Use Buildings Like the One We
Are in Today
- Amenities
- Schools and Roads
• TPPA and PPEA
Why are there Public/Private
Partnerships?
From Public Perspective
• Private Markets Not Delivering Goods/Services Deemed
Important to the Viability of the Political Jurisdiction and
Its Citizens
• Workforce Housing
• Public Parking
• Convention Center Hotel
Why are there Public/Private
Partnerships?
From Public Perspective
• Improve the Jurisdiction’s QOL for its
Citizens by Attracting or Promulgating
Private Economic Development Projects
that will Produce a Public Good
- Increase Jobs and Taxes at Local Level
Why are there Public/Private
Partnerships?
From Public Perspective
Jobs
• Attract Through Public Incentives, Private
Development that Would Not Otherwise Occur
Taxes
• Promulgate Private Development on Public
Land that Monetizes a Heretofore
Unproductive Public Asset Which Increases the
Local Tax Base
- Sell/Lease Air Rights for Private
Development Over a Public Building
Why are there Public/Private
Partnerships?
From Public Perspective
• Intervene in the Real Estate Market to
Accelerate and Target Economic Development
to Geographic Areas Not Experiencing
Development
Tools
• Reduce Risk/Costs
• Enhance Reward/Profit
Why are there Public/Private
Partnerships?
From Public Perspective
Accelerate
• Entice Private Investment into Areas
Where Normal Returns are Inadequate
and Barriers to Investment
• TIF Financing to Build Parking Decks
Around Commuter Rail Stations
Target
• Reduce Blight and Poverty in Areas that
Are Having Difficulty Revitalizing
Through Normal Market Forces
• County ICP
Why are there Public/Private
Partnerships?
From Private Perspective
A. Profit
B. Profit
C. Profit
D. Enhanced Reputation
E. Market Niche
F. Corporate Citizenship
Enhanced Community QOL
“Why PPP” Answer: But For and The
Gap?
From Private Perspective
1. Gap
2. “But For”
3. Project Feasibility Analysis
4. Strategies/Tools
5. Not Easy
“Why PPP” Answer: But For and The
Gap?
1. Gap
A. The Common Element to all PPP is the
Gap Between What the Private Markets
Will Produce (Given the Capital
Markets’ Risk/Reward Calculations for
ROI) and What the Public Sector Needs
“Why PPP” Answer: But For and The
Gap?
1. Gap
B. To Make the Private Markets “Work” to Fulfill
Public Needs, The Gap Must Be Closed Either
by
• Reducing the Private Sector’s Cost/Risk, or
• Increasing its Profit/Rewards
“Why PPP” Answer: But For and The
Gap?
2. “But For”
“But For” Must be Demonstrated to Justify Use
of Public Funds in a Private Sector Project
BUT FOR Public Funds/Involvement, Project is
Infeasible and Public Benefit Will Not Be
Generated
“Why PPP” Answer: But For and The
Gap?
3. Project Feasibility Analysis
Initial and Essential Analysis
Understanding the Economics of the Private
Sector Project and Quantifying the Private
Sector’s Gap
“Why PPP” Answer: But For and The
Gap?
4. Strategies/Tools
Once The Gap is Verified and Quantified,
There are Strategies and Tools Local
Government May Use to Forge PPP
“Why PPP” Answer: But For and The
Gap?
5. Not Easy
PPP are the Most Difficult Real Estate Projects to
Design and Manage; ULI Experience Has Led to
10 Principles
Prepare for Public/Private Partnerships
•
•
•
•
Public/Private Partnerships Growing Trend
Combine Strengths and Resources of Public and
Private Sectors
Requires Give and Take on Both Sides for a
Successful Project
Replaces Confrontation with Collaboration and
Cooperation for Shared Goals
Four Stages of PPP
Stage 1:
Stage 2:
Stage 3:
Stage 4:
Conceptualization
Negotiate and Document
the Deal
Prepare for Implementation
Implementation
Four Stages of PPP
Stage 1:
•
•
Conceptualization
Develop Shared Vision
Select Partners Through Competitive
Bid
Four Stages of PPP
Stage 2:
•
•
•
•
•
Negotiate and Document the Deal
Project Elements
Roles and Responsibilities
Risks and Rewards
Decision Process
Implementation Process
Four Stages of PPP
Stage 3:
•
•
Prepare for Implementation
Obtain Support for All Stakeholders
Begin Project Financing
Four Stages of PPP
Stage 4:
•
•
•
Implementation
Construction
Leading and Occupancy
Property and Asset Management
Ten Principles of PPP
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Prepare Properly for Public/Private Partnerships
Create a Shared Vision
Understand Your Partners and Key Players
Be Clear on the Risks and Rewards for All Parties
Establish a Clear and Rational Decision-Making
Process
Make Sure All Parties Do Their Homework
Secure Consistent and Coordinated Leadership
Communicate Early and Often
Negotiate a Fair Deal Structure
Build Trust as a Core Value
1. Prepare Properly for PPP
Public Role
• Assess Capabilities
• Create a Public Vision
• Be Legislatively Prepared
• Be Resourceful with Funding
• Have the Land Ready
• Manage Expectations
- Ballston Partnership
1. Prepare Properly for PPP
Private Role
• Establish Feasibility
- Market Study
- Appraisal
- Financial Parameters
• Know Your Partners
• Get the Right Team
2. Create a Shared Vision
Without a Shared Vision, the Project Will Fail
Create a Vision
• Stakeholder “Buy-In”
• Give Chance for Input to All Stakeholders
• Hold Hearings and Charettes
• Involved the Media
• Must be Long Term
- Denver Union Station Rail Yards
2. Create a Shared Vision
Without a Shared Vision, the Project Will Fail
Sustain a Vision
•
•
•
•
•
•
Not Just a Pretty Picture
Needs Implementation Strategy
Determine Funding Sources
Create an Agenda
Outline Timeframe
Market and Financial Studies
3. Understand Your Partners & Key
Players
Public Partner
Private Partner
Non-Profits
Stakeholders
3. Understand Your Partners & Key
Players
Public Partner
• Validate Public Purpose
• Tools for Implementation
• Help with Financial Incentives and Tools
3. Understand Your Partners & Key
Players
Private Partner
• Develop Expertise
• Financing from Private Capital
• Design and Marketing
• Construction
• Asset Management
3. Understand Your Partners & Key
Players
Non-Profits
• Can Act as Brokers and Intermediaries
Between Public and Private Interests
Stakeholders
• Have a Right to be Heard
• Need to Keep Communication Going
Both Ways
4. Be Clear on the Risks and Rewards
for All Parties
• Prepare for Mutual Success by Using a
Balance Sheet of Risks and Rewards
• Deal with Risk and Uncertainty for
Both Sides
• Identify and Understand Rewards for
Each Player
4. Examples of Risk
Public Risks
• Bad Publicity
• Perceived Conflict of Interest
• Misuse of Funds
• Development Partner Might Fail
• Public Opposition
• Liability Impacts
4. Examples of Risk
Private Risks
• Higher Costs of Development
• Time Consuming Process
• Uncertainty About Public Sector Ability to
Deliver Entitlements and Funds
• Perception of Excessive Profit at Public
Expenses
• Changes in Public Leadership
• Untimely Leak of Private Business
Information
4. Examples of Rewards
Public Rewards
• Increased Community Wealth
• Increased Revenues
• Promote City Image
• Job Creation
• Better Quality of Life
• Re-election of Public Officials
• Job Advancement for Staff
4. Examples of Rewards
Private Rewards
• Short-term Profits
• Long-term Value
• Enhanced Reputation
• Market Niche
• Community Betterment
5. Establish a Clear and Rational
Decision-Making Process
•
•
•
Create Road Map of Decisions
• Approvals
• Financing
• Community Meetings
Define Roles and Responsibilities
• Assign People to Committees
• Designate Public and Private Lead People
Create Checks and Balances
• Hire Consultants for Technical Input
• Review Draft Materials Before Signing Off
6. Make Sure All Parties Do Their
Homework
• Continue Due Diligence
• Share Information
• Adopt Scenario Planning to
Anticipate Possible Major Changes
• Pursue Creative Public/Private
Finance Plants
7. Secure Consistent and
Coordinated Leadership
•
Each Deal Needs a Champion
•
•
•
•
Springfield
Merrifield
Seven Corners
Richmond Highway
Qualities of Leadership
•
•
•
•
•
•
•
Integrity
•
Vulnerability
•
Discernment
Awareness
•
Courage
Sense of Humor
Intellectual Energy
Predictability
Comfort with
Ambiguity
Spend Required
Time for Project
Management
8. Communicate Early and Often
Internal Communication
• Setup On-Going Meetings
• Establish Working Groups
• Set Goals and Timelines for Each Group
• Report on Progress at Each Meeting
External Communication
• Websites
• Advisory Groups
• Neighborhood Meetings
9. Negotiate a Fair Deal Structure
•
•
•
•
•
•
•
•
•
Define What is Fair
Determine How to “Get to Fair”
Spend Time Understanding Term Sheet
Principals Must Retain the Vision
Use Objective Measures of Outcomes
Hire Competent Counsel
Allow Time for Negotiations
Be Prepared for Long-term Partnership
Be Prepared for Compromise
10. Build Trust as a Core Value
Build Trust
• Verify Qualifications
• Review Track Record
• Ensure Private Capacity
• Work to Create Personal Relationships
10. Build Trust as a Core Value
Maintain Trust
• Meet Performance Schedules
• Build Personal Relationships
• Find Methods of Communication
• Work to Understand Others’ Perspectives
• Develop Mutual Goals
• Be Open to Changing Conditions
Public Sector Strategies and Tools
Strategies and Tools to Stimulate Private
Investment in Local Economic
Development for the Public Good
a) Strategies
b) Local Governments
• Public “Equality” Investments
• Public Debt Financing
• Non-Financial Public Assistance
Public Sector Strategies and Tools
A) Strategies
• Reduce Projects’ Costs
• e.g. Cost of Construction, Land or
“Equity”
• Absorb Need for New or Improved
Infrastructure
• Public Role/Benefits Go Beyond
Reducing Project Costs
• Lower Project’s Operating Expenses
• Taxes and Debt Services
Public Sector Strategies and Tools
A) Strategies
• Reduce Project’s Predevelopment Risk
• Minimize Political and Regulatory
Uncertainty
• Enhance Availability of Private Capital
for the Public/Neighborhood
• Public Partner Can Improve Access
to Debt/Equity
Public Sector Strategies and Tools
B)
Strategies
1. Public “Equity” Investment
a. Land Assembly/Acquisition to
Include Demolition and Relocation
b. Capital Improvements:
Infrastructure, Parking,
Open Space, Streetscapes,
Amenities, etc.
c.
Grants
Public Sector Strategies and Tools
B)
Local Government Tools
2. Public Debt Financing
a. Inter-government Loans
CDBG, Section 108, etc.
b. Local Debt Financing
Go Bonds, Revenue Bonds, IRB’s
c. Off-Budget Financing
Lease/Purchase Agreements, Ground Leases,
Property Tax Abatements, and Land/Building
Swaps
d. Dedicated Sources of Local Funds
CDA’s TIF, Reuse of UDAG Loan Pay Backs, and
Housing Trust Funds
Public Sector Strategies and Tools
B) Local Government Tools
3. Non-Financial Public Assistance
a. Zoning and Density Bonuses
b. TDR (Transfer of Development Rights)
c. TAR (Transfer of Air Rights)
d. Regulatory Relief
- Set Backs,
- Green Space,
- Height Limits,
- Building Codes
Summary
•
•
•
•
Public and Private Cooperation
Based on Mutual Understanding
Heart of the Deal
Closing the Deal
Public Tools Used to Cut Capital Costs or
Improve Operating Income