Massachusetts Department of Transportation
(MassDOT)
Potential Next Steps for Projects:
Route 3 South
Highway Real Estate Assets
South Station Expansion
October 15, 2013
Contents
Executive Summary
Route 3 South:

Overview

Potential Delivery Structures

Considerations
Highway Assets:

Overview

Potential Delivery Structures

Considerations
South Station Expansion:

Overview

Potential Delivery Structures

Considerations
Next Steps
Route 3 South Managed Lanes
1
Executive Summary
Purpose

The Massachusetts P3 Oversight Commission (Commission) requested further information on three key projects:
–

Route 3 South, Highway Real Estate Assets (“Highway Assets”), and South Station Expansion
The goal of this exercise is to understand what potential transaction structures may look like, what further information is
needed to make a decision to move forward, and what are the necessary questions to consider when deciding whether to
advance a project for P3 delivery
Key Findings

Various potential P3 delivery structures have been identified for Route 3 South, Highway Assets, and South Station Expansion

All three projects require further information, including revenue studies and cost refinements, in order to develop a detailed
to support the decision-making process
2
Route 3 South
Overview

The Project includes the construction of HOT (High
Occupancy Toll) lanes, also known as “managed
lanes”, between:
–
I-93 / Route 3 interchange at Braintree at the north
end; and
–
Exit 14 (Route 228) in Rockland at the south end

The Project would add one lane in each direction,
creating 4 lanes of traffic from the I-93/Route 3
interchange to Exit 16, and 3 lanes of traffic from Exit
16 to Exit 14

The Project could also include expansion of 3 lanes
continuing down to Exit 11, as MassDOT examined
the widening of Route 3 South from Exit 16 to Exit 11
in 2005

Different tolling policies may be used in order to
manage congestion (e.g. dynamic pricing, time of the
day pricing)

In 2012, MassDOT received an unsolicited proposal
for the addition of managed lanes from the I-93/Route
3 intersection to Exit 14 under a P3 model
3
Route 3 South
Potential Delivery Structures
Potential Delivery Model
Features
Risk transfer: A developer will be responsible for the delivery of the project under a fixed-price, datecertain design-build contract and will be responsible for O&M during the life of the contract (typically a
50-75 year contract term). Toll setting control as well as traffic and revenue risk are transferred to the
developer. Tolling operations are the responsibility of the developer.
Payment mechanism: The developer will pay for O&M, life-cycle costs as well the initial capital
investment through the collection of tolls. Any funding gap will need to be covered by a Commonwealth
contribution.
Option 1: DBFOM – Toll
Concession
Private investment: Typically, under this delivery model, projects are funded with a combination of
debt and equity at a ratio between 65/35% to 80/20%.
Bidder Selection Criteria: May be based on the private bid that generates largest upfront payment to
the Commonwealth (if projected revenue exceeds projected costs) or the private bid that requires the
lowest public subsidy from the Commonwealth. Another option would be for the Commonwealth to
receive a portion of gross revenues over time.
Procurement Process: Request For Information (RFI)/Market Soundings, Set up Data Room, Issue
Request For Qualifications (RFQ), Select Qualified Bidders, Issue Draft Request For Proposal (RFP), Issue
Final RFP, Bidder One-on-Ones, Bidder Negotiations, Select Preferred Bidder, Commercial Close, Financial
Close. (The only variable will be timing as qualified bidders will be bidding on the same transaction
scope).
4
Route 3 South
Potential Delivery Structures (Cont’d)
Potential Delivery Model
Features
Risk transfer: A developer will be responsible for the delivery of the project under a fixed price
date certain design build contract and will be responsible for O&M during the life of the contract
(up to about a 35-year contract term). Traffic and revenue risk and tolling policy are retained by the
Commonwealth. Specific activities may be retained by the Commonwealth (e.g. snow & ice
removal), if it is deemed more cost effective. Tolling operations may be outsourced to the
developer, if it is deemed more cost effective.
Option 2: DBFOM – Availability
Payments
Payment mechanism: The developer may be repaid by the Commonwealth with milestone
payments during construction, construction completion payments, and/or a stream of availability
payments post construction completion. Payments are additionally subject to performance
deductions. The Commonwealth may fund payments though state funds and /or toll revenue.
Private investment: Typically, under this delivery model, projects are funded with a combination
of debt and equity at a ratio between 85 /15% to 90/10%.
Bidder Selection Criteria: May be based on the private bid that requires lowest availability
payment from the Commonwealth.
Procurement Process: RFI/Market Soundings, Set up Data Room, Issue RFQ, Select Qualified
Bidders, Issue Draft RFP, Issue Final RFP, Bidder One-on-Ones, Bidder Negotiations, Select Preferred
Bidder, Commercial Close, Financial Close. (The only variable will be timing as qualified bidders
will be bidding on the same transaction scope).
5
Route 3 South
Considerations
Information needs & activities:

Traffic & revenue study (on a segment by segment basis)

Technical advisors to provide refined capital and cost inputs, inclusive of tolling equipment (on a segment by
segment basis)

Determining state tolling policy objectives (e.g., revenue maximization, throughput maximization)

Conduct market sounding with potential bidders

Conduct an operational assessment of managed lanes (e.g., impact of one HOT lane per direction)
Questions to move forward:

What are the optimal north and south project limits?

What is the optimal project design (e.g., Should there be one HOT lane in each direction? Should there be
barriers on each side? How will this design affect operations & maintenance?)

Will SOV users also be permitted access to the HOT lanes?

How are toll rates going to be set (e.g. maintaining minimum speed or throughput maximized)

What are the economic benefits/costs of this project?
6
Highway Assets
Overview
Highway Assets

MassDOT has 133 highway assets*, which are properties that include one or more of the following assets:
Type of Highway Asset
Interstate Highway
State Highway
Total Assets
Weigh stations
9
11
20
Park and ride
8
24
32
Service plazas
8
4
12
Information centers
7
8
15
Registry
1
0
1
Rest areas
8
45
53
Total
41
92
133

Further analysis of these highway assets is required in order to identify which ones could be bundled in a
potential P3 structure

MassDOT is interested in identifying opportunities that would allow revenue generation or costs savings in
relation to these assets
*Assets include weigh stations, park and rides, service plazas, information centers, registries, and rest areas. Please note that some of the
highway assets are located at the same geographical location. MassDOT owns 112 individual geographical locations of highway assets in
Districts 1-6 as per the information provided by MassDOT.
7
Highway Assets
Overview (Cont’d)
Further review required to determined
available delivery structure:

Park & Rides
–
Locations: State 24; Interstate 8 (1 of
which is closed)
–
Locations must be further examined in
light of community agreements;
however advertising may be
permissible without a further location
by location review

Based on State law, Commission for the
Blind has first right to all revenue
generated by vending machines

Federal Issues
–
Advertising may be required to be located inside the building or on the ground (not facing the highway or directly visible
from the highway) on both State and Interstate highways
–
Federal restrictions on activities in the state highway locations may or may not be applicable based on different
interpretations of the Highway Beautification Act
8
Highway Assets
Potential Delivery Structures
Potential Delivery Model
Payment Mechanism
Risk transfer: Contract out operations and maintenance functions for state-owned rest areas as well
as develop and administer an advertising and sponsorship program for these rest areas. This project
structure would take advantage of advertising and other revenue generating opportunities that
currently exist under federal and state law.
Bidder Selection Criteria: May include a firm that generates the highest net revenue for the
Commonwealth or lowest O&M funding stream.
Option 1:
Sponsorship/Advertising + O&M
Payment mechanism: Pre-agreed stream of payments from the Commonwealth for O&M funding net
of revenues from sponsorship and advertising revenue (vending is also a potential option, however
considerations for Commission for the Blind requirements must be taken into account).
Procurement Process: RFI/Market Soundings, RFQ, RFP, Bidder One-on-Ones, Bidder Negotiations,
Commercial Close, Financial Close.
Comparable model: Arizona is working on a similar rest area program. The contract establishes that
the private partner will operate and maintain state-owned safety rest areas as well as will develop and
administer an advertising and sponsorship program at these safety rest areas. The project will take
advantage of advertising and other revenue generating opportunities that currently exist under federal
and state law. Adding vending would be an additional option for the Commonwealth to consider.
9
Highway Assets
Potential Delivery Structures (Cont’d)
Potential Delivery Model
Payment Mechanism
Risk transfer: Contract with a sponsor for state-owned rest areas in order to collect an annual
revenue share in exchange for sponsorship rights directing travelers to rest areas. This project
structure could help generate excess revenue in order to offset operating costs that are retained by
the state.
Bidder Selection Criteria: May include a firm that generates the highest net revenues for the
Commonwealth.
Option 2:
Sponsorship/Advertising/Vending
Payment mechanism: Revenues from sponsorship and advertising revenue (vending is also a
potential option, however considerations for Commission for the Blind requirements must be taken
into account).
Procurement Process: RFI/Market Soundings, RFQ, RFP, Bidder One-on-Ones, Bidder Negotiations,
Commercial Close, Financial Close.
Comparable model: Virginia used a comparable model through its “SAVE” program. A private
partner was selected to establish a contract to create new, and maximize existing, revenue streams
by enhancing opportunities in sponsorship and vending, and by providing more comprehensive
information of specific interest to the traveling public at the safety rest area and welcome center
facilities throughout the Commonwealth.
10
Highway Assets
Potential Delivery Structures (Cont’d)
Potential Delivery Model
Payment Mechanism
Risk transfer: Developer will be responsible for the redesign and redevelopment of the rest areas to
allow for additional activities. The contractor will be responsible for the ongoing operation & maintenance
of the facilities. Repayment of the initial investment and ongoing costs will be funded from the revenue
generated from restaurants, gas stations, etc. A mechanism can be set to share excess revenue between
the developer and the Commonwealth. Such a s may require changes in legislation and/or negotiations
with key stakeholders. Negotiations would be required with FHWA in order to get a change in Federal
legislation that would allow for the Commonwealth to add more service plazas on interstates
Option 3: Service plazas
Bidder Selection Criteria: May include a firm that generates largest upfront payment from private
developer in exchange for long-term lease, the bidder who requires lowest public subsidy or possibly the
bidder who provides the largest revenue sharing.
Payment mechanism: Pre-agreed upfront or on-going fee with the Commonwealth for the right of the
developer to the revenue stream from the service plazas (from sponsorship, advertising, and concessions).
Procurement Process: RFI/Market Soundings, RFQ, RFP, Bidder One-on-Ones, Bidder Negotiations,
Commercial Close, Financial Close.
Connecticut model: The concessionaire will pay for 100% of the improvements to the service plazas in
exchange for a right to redevelop, operate and maintain the facilities for 35 years. In addition to funding the
improvements, the concessionaire will make annual payments to the State in the form of minimum
guaranteed payments and revenue sharing.
11
Highway Assets
Potential Delivery Structures (Cont’d)
Option 1:
Sponsorship/advertising + O&M ( +
Vending)
Weigh Stations: 9
Information Centers: 7 (3 of which
are closed)
Registry: 1
Rest Areas: 8 (6 of which are closed)
Total Assets: 25
•
•
Limitation regarding revenue from
vending going to Commission for the
Blind
•
Limitation regarding revenue from
vending going to Commission for
the Blind
•
Weigh Stations:11
Information Centers: 8
Registry: Rest Areas: 45 (3 of which are
closed)
Total Assets: 64
•
Weigh Stations:11
Information Centers: 8
Registry: Rest Areas: 45 (3 of which are
closed)
Total Assets: 64
Limitation regarding revenue from
vending going to Commission for the
Blind
•
•
Interstate
Highway
Locations
•
•
•
•
Comments
State
Highway
Locations
•
•
•
•
•
Comments
Option 2:
Sponsorship/advertising + Vending
•
•
•
•
•
•
•
•
Weigh Stations: 9
Information Centers: 7 (3 of which
are closed)
Registry: 1
Rest Areas: 8 (6 of which are closed)
Total Assets: 25
Limitation regarding revenue from
vending going to Commission for
the Blind
Option 3:
Conversion to Service plazas
•
Assessment of location by location
basis is required
•
Additional services at interstate
highway locations would likely
require changes in Federal
legislation
•
Assessment of location by location
basis is required
•
Would require negotiations with
FHWA on interpretation of the
Highway Beautification Act and
MAP-21 and whether it applies to
rest areas on state highways
12
Highway Assets
Considerations
Information needs & activities:

O&M and revenue estimates on a location by location basis

Market sounding with potential investors to refine scope for different bundles of assets

Legal review to further examine legal constraints around MassDOT owned highway assets (Federal and State
law) and community agreements
Questions to move forward:

Can services / activities be expanded on state highway assets according to state law?

How (if applicable) will the community
agreements in place restrict the
Commonwealth’s ability to access
revenue potential at park and ride
facilities (and potentially other rest
areas)?

What other restrictions will state law
have on activities at rest areas by a
private operator?
13
South Station Expansion
Overview

The South Station Expansion Project involves the expansion of the station, as well as the creation of a new midday rail vehicle
layover facility

The project includes the acquisition and demolition of an existing US Postal Service General Mail Facility currently located
adjacent to the station and relocation and construction onto a new site

The expansion will include installation of new platforms and terminal tracks, the construction of new passenger concourse
and facilities and the rehabilitation of the existing interlockings

Project elements also include pedestrian, bicycle and vehicular access improvements in the form of reconstruction of
Dorchester Avenue, an extension of the Boston Harborwalk and associated urban landscape design and architecture

The project also includes exploring the
integration of real estate investment and
private development around and over the
expanded station

There is currently an existing air-rights
lease agreement with Hines for South
Station (expiring in 2017) for the
proposed, but yet to be constructed,
Hines Tower. The agreement is expected
to involve private funding for the
expansion of the existing intercity bus
terminal and certain platform
improvements
Financial
District
Chinatown
South
Station
Bus
Terminal
I-90
Ramps
CA/T
Vent
USPS
Facility
Fort Point
Channel
Fort Point
Neighborhood
Source: MassDOT
14
South Station Expansion
Potential Delivery Structures
Potential Delivery Model
Payment Mechanism
Risk transfer: In this example, a developer will be responsible for the delivery of station
redevelopment and expansion under a fixed-price, date-certain design-build contract and will be
responsible for maintenance during the life of the contract (up to about 35 year contract term).
Facilities management may or may not be transferred to the private developer. Due to the existing
air-rights lease agreement with Hines that expires in 2017, the developer may be responsible for
negotiating a new air-rights lease if incorporating commercial development (retail, office, etc.) into
the contract.
Option 1: DBFM - Availability
Payment
The Commonwealth could enter into a contract for commercial development over the expanded
station at the location that is currently occupied by the USPS offices to fund a portion of station
costs after entering into DBFM contract to build transportation elements of the project. Such a
contract is in addition to the current air rights agreement with Hines over the existing station
building and which expires in 2017.
Payments mechanism: The Commonwealth makes milestone payments during construction,
construction completion payments, and/or annual availability payments to developer during life of
contract. The Commonwealth may fund payments though state or federal funds or proceeds from
commercial development and store concessions. The real estate project would be funded separately
by private real estate developer.
Private investment: Typically, under this delivery model, infrastructure projects are funded with a
combination of debt and equity at a ratio between 85/15 to 90/10%.
Selection Criteria: May include the private bid that requires lowest availability payment from the
Commonwealth.
Procurement Process: RFI/Market Soundings, Set up Data Room, Issue RFQ, Select Qualified
Bidders, Issue Draft RFP, Issue Final RFP, Bidder One-on-Ones, Bidder Negotiations, Select Preferred
Bidder, Commercial Close, Financial Close.
15
South Station Expansion
Potential Delivery Structures (Cont’d)
Potential Delivery Model
Payment Mechanism
Risk transfer: In this example, a developer will be responsible for the delivery of the project under a
fixed-price, date-certain design-build contract. Commonwealth retains risk for O&M and financing.
The Commonwealth could enter into a contract for commercial development over the expanded
station at the location that is currently occupied by the USPS offices to fund a portion of station
costs. Such a contract is in addition to the current air rights agreement with Hines over the existing
station building and which expires in 2017.
Option 2: DB
Payment mechanism: Commonwealth makes payments to developer based on achieving
milestones and completion of design and construction. Commonwealth may leverage funding
sources from re-selling air rights or commercial redevelopment rights to invest in the design and
construction of the station.
Private investment: There is no private investment for the station expansion. Private financing
will be used for the real estate development
Selection Criteria: Bid selection may include the private bidder that requires the lowest DB price
from the Commonwealth.
Procurement Process: Design build contract procurement.
16
South Station Expansion
Considerations
Information needs & activities:

Technical advisors to provide refined capital and cost inputs

Commission revenue and market demand study

Discuss feasibility of real estate development

Determine right sized project scope

Complete the MEPA and NEPA processes to determine a fully vetted preferred alternative

Advance negotiations with US Postal Service and the City of Boston regarding acquisition and relocation of
the General Mail Facility
Questions to move forward:

Can the negotiations between MassDOT and the US Postal Service be expedited?

How can this project scope be further refined?

Has a suitable location for the new midday rail vehicle layover facility been identified?

There is currently an existing air-rights lease agreement with Hines for South Station (expiring in 2017) for the
proposed Hines Tower. What role will this lease agreement have in the future expansion of the station?
17
Summary
Next Steps

Commission necessary revenue and costs studies for desired projects in order to be able to accurately
assess financial feasibility

Conduct further diligence on outstanding legal considerations to further clarify transaction structures

Discuss policy questions that have an impact on project feasibility

Move forward with market sounding activities to understand market interest in projects
18