Public Private Partnerships - Striking a Balance Between Bottom Lines and Community Values

April 8, 2019
Written by: Susan Cumins, CREW Miami member since 1998
Public Private Partnerships - Striking a Balance Between
Bottom Lines and Community Values
 
Presented at CREW Miami’s Luncheon Meeting, March 21, 2019
 
 
MODERATOR: Iris Escarra, Co-Chair, Miami Land Development and Zoning Practice, Greenberg Traurig  
   
PANELISTS Sarah Haccoun, Co-Founder and Principal, Steinmauer Family
Sara B. Herald, Attorney, Bilzin Sumberg
Adam D. Mait, Vice President, Adler Group
 
Public Private Partnerships (P3s) are a process for combining the resources of the public and private sectors. When the interests of private entities and public bodies align, collaborations can improve under-used real estate, generate revenue for municipalities, and add jobs and profits to the private sector.
 
Moderator Iris Escarra of Greenberg Traurig asked panelists to describe how public private partnerships are initiated.  “A P3 starts with an entity that has a need, or an opportunity that private enterprise is willing to take on,” replied Sara Herald of Bilzin Sumberg, citing the Biltmore Hotel in Coral Gables. Built in1926, the hotel was an army hospital in1946-47. The Veteran’s Administration owned it until1968, then it sat vacant until the City of Coral Gables was about to demolish it. Private entities came forward with a redevelopment plan in1983 and the restored hotel opened in1987.  
 
Steinmauer Family’s Sara Haccoun gave the example of affinity situations with win-win scenarios like one she is involved with. As part of a larger project, the developer has offered to construct a new town hall and police station costing roughly $15 million to serve the town’s residents and business community. If built, ownership of those facilities would remain with the municipality. Adler Group’s Adam Mait described another scenario: “Developers recognize the need for affordable housing, and they approach county government to locate housing venues in infill areas or near public transit.” Each side in a P3 may have access to funding options not available to the other. For example, a developer may get private financing to use the air rights above a publically-financed parking garage.
 
Panelists agreed that patience and persistence are vital to the P3 process. Development and redevelopment projects can span several political administrations, and during the long lead time market conditions change and financing opportunities come and go. Developers’ pre-bid and pre-approval costs are high, and elected officials may not know the ideal way to proceed. All parties to a P3 benefit from the expertise of appraisers, land use attorneys, architects, and other professionals.
 
Rules are important. “P3s have blackout periods when you cannot talk to certain people. Violations of the state’s sunshine law, or the requirement for lobbyists to be registered, can get a bid thrown out,” Herald said. Private sector teams, to be successful, must work diligently to educate and communicate with citizens and elected officials. “Don’t overlook anyone or take anyone for granted,” Herald said. “You need all of the votes, and an early supporter could change position as the process moves ahead.”
 
Sara Haccoun uses every avenue, including social media, to get across to stakeholders that a project is a win-win situation. “A small minority of residents can disrupt the entire progress, so let the neighbors know that you can still make changes to the project, the changes they want,” she advised. Everyone’s vision must be in sync all the way through implementation or, as Mait pointed out, “Sometimes what voters or officials approved turns out to be different from what they had expected.”
 
Risk vs Reward. In a P3, the developer’s risks are the same as in a straight private deal. Each entity has its partners, stockholders, equity investors, and lenders to satisfy. “Municipalities often want to shift risk (i.e., budgets, timetables) to developers,” Mait said, “but doing that also increases the private developer’s share of the rewards. City officials don’t always realize this, but consultants can help clarify that process.”
 
Determining and structuring ground leases calls for creativity in P3 negotiations. “One way is to set a value on the dirt (government-owned land) with an appraisal,” Herald said, “then calculate the current value of a property like the one being proposed.” Because the potential income stream is relevant to value, some deals call for re-appraisal and rent adjustment in 25 years. Mait has offered incentives like paying for the land value up front and offering the public partner a share of rents in the completed product.
 
Banks and investors are reluctant to lend when their interests are not secured in the usual way. “When presenting P3 projects to the banks, we need a minimum 70-year ground lease; 90 or 99 years is best,” Mait said. “Equity groups want long ground leases so they can realize profits on the completed project. Some loan terms are multi-phased; instead of running during the construction period, loan terms are reset when the certificate of occupancy is issued.”
 
Workforce and Affordable Housing. At the Douglas Road Metrorail project that Mait’s firm is building, he said five percent of the 1,500 residential units will be priced as workforce housing, and are in the first phase with the amenities. “Those units will be smaller than the rest, similar to student housing but designed for workers with entry-level jobs. But residents will be close to everything, including transit.” Herald commented that building and zoning codes are outmoded. “Existing codes are based on traditional single family homes, but today’s low income people without cars need different things. Truly affordable housing cannot cost $1,000 a month to rent.”