Principles of Public-Private Partnerships for Real Estate & Economic Development

Principles of

Public-Private Partnerships for

Real Estate & Economic DevelopmentPREPARED FOR

LELAND CONSULTING GROUP Urban Strategists

PREPARED BY

Principles of Public-Private Partnerships 2

• Introduction

• Real Estate Development:

Principles and Process

• Public-Private Partnerships: How and Why?

• Public-Private Partnership Case Studies:

• Otay Mesa

• Riverplace

• Tualatin Commons

PRESENTATION OUTLINE


INTRODUCTION

Leland Consulting Group: What we do

Work with public & private sector real estate executives to solve tough problems and:

Stimulate economic success Make great urban places Enhance the human

experience


INTRODUCTION

Professional Services Strategic Planning Market Research/Analysis Economic and Demographic

Forecasting Land Use Strategies Development Programming Negotiations and Deal Structuring Public-Private Partnerships Financial Analysis Regulatory Approvals Litigation Support Project Management


DAVE LELAND

40 years industry experience as• Developer• Consultant• Advisor• Owner

Blend of public and private clients Geographic focus: west coast,

national, international Counselor of Real Estate (CRE) Frequent ULI panelist and speaker Mixed-Use, Smart Growth leader

Real Estate Development:

Principles and Process


Developer Experience

Financial Capability

Design Excellence

CommunityGoals

Success

Public-Private Partnership

SUCCESSFUL PROJECTSSuccessful public-private development projects require a holistic and balanced approach


Design Feasibility Implementation

Feasibility Design Implementation

Backwards

A Bit Better

Best – Iterative, Holistic, and Multidisciplinary

Preliminary Feasibility

Design

Preliminary Financial Analysis Outreach

Market Assessment

Political Evaluation

Design

Financial Feasibility

Implementation

DEVELOPMENT IS AN ITERATIVE PROCESS


MARKETS ARE UNFORGIVING

Markets are people & their• Needs• Desires• Ability to pay• Willingness to pay

With choice, positive price – value is essential

People reject places and products that are not responsive to their needs, desires, or budget


MARKETS CHANGE

Source: Legg Legg Mason Wood Walker, Inc. and Leland Consulting Group

Positive But Tight

Construction

Long-Term Average Vacancy

Phase II - Expansion

Phase IV - Recession

Phase III – Hypersupply

Phase I - Recovery

• Increasing Vacancy • New Construction

• •

• Declining Vacancy • New Construction

• Increasing Vacancy

• More Completions

Negative Rental Growth

Below Inflation Rental Growth

Rents Rise Rapidly Toward New Levels

High Rent Growth In Market

Rent Growth Declining

Below Inflation & Negative Rent Growth

Declining Vacancy No New Construction

10

14

1 2

3 4

5

7

9 8

1

6

11 12

13

15

16

Cost Feasible New Construction Rents

Supply/Demand Inflection Point


21st CENTURY MARKET “WAVES”

Megaregions and Urbanization Asia, Abundance, Automation Energy: Carbon Scarcity,

Renewal Emergence Infrastructure Upgrades Aging population Public focus:

Human Capital, Education, Amenities Pacific NW Clusters:

• High Tech and Clean Tech• Natural Resources• Manufacturing and Trade


RISK MANAGEMENT

Development involves risk: Market, capital, and operating risks

Risk is determined by project type,

developer experience and local

conditions

Experience is essential

Each component must be

successful and complement the

others

Exceed the market’s expectations

Public-private partnerships help to

mitigate risk Two thirds of mixed-use

developments by inexperienced

developers fail.


Psychiatrist

Politician

Financial Analyst

Real Estate Market Analyst

Urban Planner

Architect & Designer

Public Relations SpecialistManager

Engineer

Lawyer

Visionary

SUCCESSFUL DEVELOPERS WEAR MANY HATS


Silos – A Modern Problem

Too manyspecialists, notenough generalists

Planners should understand how investors think. Lenders should understand the built environment. Real estate should be part of the planning DNA.

Design

Design

Planning

Planning

Transportation

Transportation

Fin

an

ceF

ina

nce

AVOID THE SILOS


ENGAGING BOTH SIDES

20th Century:Left brain thinking

21st Century:Whole brain thinking• For individuals and

organizations• Communication is

essential

Public-Private Partnerships:

Why and How


WHY PUBLIC-PRIVATE PARTNERSHIPS?

Enhance feasibility – projects that otherwise wouldn’t happen

Accelerate investment timeline Provide greater public benefits Achieve significant policy goals Improve quality, scale, or

location Overcome barriers

• Financial• Market• Regulatory• Physical• Political


Leverage: Strategic management of public

money Link public projects to private

investment “Build it and they will come” is

not always true… Spend limited public $$$ where

you know it will leverage private investment

Private to public investment ratio of 4:1 or 5:1



Create investment momentum:

Trigger additional private investment

Create an anchor for future projects

Provide an amenity for residents

Strengthen tax base

Create a sense of place



Many parts must simultaneously fit together …

The whole is greater than the sum of its parts.

Design

Finance MarketSuccessful

Project

The Market Location, Visibility,

and Access

Leadership & Communication

Financial Capability

Developer Experience & Capability

Public Policy

& Regulation

Design

Timing

SUCCESSFUL PROJECTS


Every deal is different! Financial and non-

financial participation Formal and informal

agreements Use all the tools in your

toolbox One or more public

agencies (not just the City)

PUBLIC-PRIVATE PARTNERSHIPS DEALS


Responsibility Downtown Development Principles Public Private Joint

Maximize pedestrian access

Promote development densities

Define areas where development will be concentrated

Develop a strong commercial core

Plan and manage parking effectively

Promote commercial land use intensities

Promote residential development near transit/shopping

Promote and provide incentives for infill

Promote residential units above grade level retail

Provide an adequate amount of retail

Establish a wide range of land use activities

Encourage a mix of different housing types

RESPONSIBILITIES ARE SHARED

TASK


Expedited permitting Master planning Regulatory assistance Tax abatements Land assembly Investment in

infrastructure• Streets• Sidewalks• Parks• Parking

Tualatin Common

TYPICAL PUBLIC SECTOR PARTICIPATION


Joint marketing Loans, financing Tax increment

financing Commitment of SDCs Community relations Many, many more…




Financial Incentives TIF Tax Credits Tax Abatement Zero/Low-Interest Loans Public-private partnerships Grants

• Façade• TOD• Energy/Green

Density bonuses


What the Public Sector Seeks from the Private Developer: Developers who know Mixed-use and Place Making

• Know the public scrutiny and won’t back out

• Understand public process

• Have experience in the type of project desired

• Successful track record Developers Who are Financially Strong

• Equity or an equity source in place

• Debt sources as well An open book process

WHAT THE PUBLIC SECTOR SEEKS


What the Developer Seeks from the Public Sector: Strong Political Will

• Stable City Council/Planning Commission

• Community Support

• Community and Business Alignment

• Favorable (or at least neutral) media Public Financial Means

• Urban Renewal

• Bonding Capacity

• Land Control

• Other Needed Incentives and Mechanisms

WHAT THE PRIVATE SECTOR SEEKS


1. RFQ – find your partner

2. MOU – establish the deal outline

3. DDA – create the plan, hammer out the details

4. Ongoing management agreements

TYPICAL DEAL PROCESS


MOU Less complex Early stage Outline deal points Due diligence stage May/may not be legally

binding

…but politically committing

MEMORANDUM OF UNDERSTANDING (MOU)


DDA or DA Next step after the MOU Master legal document to

structure partnership Legally binding Extremely detailed Roles & responsibilities Recourse Many, many deal points…

DEVELOPMENT & DISPOSITION AGREEMENT


Public contributions Development and land

purchase phasing Purchase price Upside participation Ability to resell property Design standards Timeline Roles and responsibilities Offsite plan Development obligations Performance requirements Remedies for non-

performance

DDA DEAL POINTS


Land leases Parking leases Easements Building leases Maintenance

agreements Marketing agreements

Tualatin Commons

OTHER AGREEMENTS


Understand your partners and key players

Develop a communication strategy

Build public trust through involvement

Be responsive to each other’s needs

Have a common vision

COMMUNICATE EARLY AND OFTEN

Case Studies:Otay Mesa, Riverplace, Tualatin Commons


OTAY MESA: THE SETTING

High volume border crossing

Huge potential, low investment

4.9 jobs per acre

New economy Growth

pressures

Otay Mesa


OTAY MESA: GOALS

“A moment of opportunity: Looking Back from 2025”

Strengthen the economic base Diversify employment and

investment Balance land uses Improve access and mobility Plan for harmonious

relationships between uses Meet the need for housing Create complete places


OTAY MESA: PROCESS

Strategic Framework Stakeholder

workshops and coordination

Economic and physical research

Case studies Otay Mesa Community

Plan Update


OTAY MESA: IMPLEMENTATION

Fund SR-11, SR-125, and I-905 projects

Provide additional industrial land, sanctuary in East County

New border crossing Establish urban office campuses Develop underutilized land Attract educational institutions Expand workforce housing options Define future role of Brown Field


OTAY MESA: IMPLEMENTATION

Celebrate success! Cultivate champions Establish partnerships Prioritize decisions Pursue multiple projects

and activities Brand the Mesa


OTAY MESA: OTHER MODELS

Hillsboro, OR Emeryville, CA Irvine Business

Complex, CA

Brownsville, TX Las Colinas, Irving, TX Santa Theresa, NM


12-acre riverfront urban resort in Downtown Portland

RIVERPLACE


Weyerhaeuser Portland General Corp.

WRECO CWDC

100% 100%

Cornerstone

Columbia

Development

Company

50% 50%

RIVERPLACE OWNERSHIP STRUCTURE


Luxury boutique hotel Condominiums Apartments Athletic club Office building and retail Multiple restaurants Entertainment retail Parking Marina Esplanade

Program ElementNumber Units / Rooms / Stores Square Feet

Residential 190 235,000

Retail 13 23,220

Office 4 41,600

Hotel 74 76,600

Athletic Club 1 47,000

Total 423,420

RIVERPLACE PRODUCT MIX


RIVERPLACE DETAILS

Goal: Create a residential neighborhood and destination on the waterfront

Deal Structure: • PDC: Site cleanup,

land write down, build marina

• Cornerstone: Development, Columbia successful bidder


RIVERPLACE

Lessons Learned Market issues Retail issues Noise issues between

uses No back door Triangular site

constraints Inadequate parking Construction complexity


Redevelopment of 19-acre former dog food factory:

Tualatin Sherwood Road

TUALATIN COMMONS


TUALATIN COMMONS

Goals based on citizen input: Strong civic focus; Pedestrian and vehicular circulation; Day and night uses; Strong visual presence at major

entrances; Improved economic climate for downtown

businesses; Convenient and adequate parking; Links to nearby retail, civic, and recreation

uses; Downtown built for the long term (50+

years); and Retention of downtown's retail market

share.


Program ElementNumber Units / Rooms / Stores

Square Feet

Residential 69

Live-Work 7

Retail 4 restaurants 13,000

Office 4 87,000

Hotel 60

Public Plaza 20,000

Lake 3.1 acres

TUALATIN COMMONS

Located in a floodplain, built a 3.1 acre lake $5 million public, $35 million private

Hotel Multiple restaurants,

limited retail Condominiums and

apartments Office buildings Public open space


TUALATIN COMMONS

The “Heart of the City” Not one developer but

many City responsible for

maintenance and planning events for public areas

Emphasis on public art Marketing Citizen group “Tualatin

Futures”


CASE STUDY CONCLUSIONS

Flexibility and diversity with multiple developers versus one developer

Community support and ownership

Political support Important to ensure quality

on all levels Understand the market for

ALL uses Anticipate problems before

they arise

LELAND CONSULTING GROUPUrban Strategists

Portland • Denver • San Angelo • Mexico

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Principles of Public-Private Partnerships for Real Estate & Economic Development

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