Members of ULI’s Public/Private Partnership Councils discuss factors influencing the opportunities for collaboration between the public and private sectors on development, best practices, ways of using partnerships to catalyze economic development and engage the public, and other trends.
What challenges likely will be affecting public/private partnerships over the next few years?
Jake Gordon: The word partnership in public/private partnership [PPP] is key, and a partnership can be better than the sum of its parts, but also more complicated. The two sides don’t always speak the same language, and they don’t know the challenges that the other side faces. If you bring together a real estate developer trying to make a return on investment and someone running a civic authority who has political concerns, there can be little overlap between them. Once you’ve partnered on one project, the next project becomes a little easier. But it is hard to get city council members comfortable with a contractual relationship with a developer when the city council might not be well versed in real estate development deals, especially if it’s a huge project.
Kacey Cordes: I am fascinated by the challenge of how public/private partnerships can better facilitate neighborhood-scale development that creates the kinds of environments where people want to live and work and breathe. I was recently in Toronto, and the best neighborhoods were not the ones full of silver-bullet developments; they were the old neighborhoods that had retail bays that were probably no more than 400 or 500 square feet [37 or 46 sq m] each. To be fair, because I work in finance, I recognize how hard it can be to use public/private partnership tools to get small-scale work done. It seems as if it’s just as hard to do a $25 million deal as a $250,000 deal. Yet there has to be a way to foster the type of projects that help communities foster an authentic feel.
Jamie Weinbaum: We’re living in a somewhat fraught political time, and that could have an impact on public/private partnerships, as progressivism and distrust of business could actually lead politicians to be concerned that being in support of public/private partnerships is politically unwise.
Clay Gantz: There aren’t enough sophisticated practitioners and consultants who really understand how these deals work and how to negotiate them and structure them so that all parties get what they want. Trying to reconcile the public side and the private side of the deal is difficult because they view risk and reward very differently. You can’t just consider the financial aspect. You have to look at a much broader array of risks and benefits and reconcile them to have a successful deal.
Eric Rothman: Public/private partnerships need to engage with multiple communities more thoroughly than they used to. In New York City, the reaction to the Amazon HQ2 proposal, a major public/private partnership that would have brought tens of thousands of jobs, was vocally protested by very different communities, even though the Queensbridge Houses, the public housing development closest to it, was highly supportive of the project. Multiple constituencies were suspicious of public investment in HQ2 and suspicious of the private partner, and ultimately that made it unable to move forward in New York City. These partnerships need to build a constituency that includes multiple communities. You need a strong way to articulate who the beneficiaries are and how the partnership will advance public policy goals that include greater social inclusion and equity issues.
What are some of the most promising new tools or approaches for PPPs?
Weinbaum: Something the mayor the District of Columbia, where I live, has started that I think is very helpful is a process called “Our RFP.” It calls for the public sector to do some of the early initial community development work when contemplating a new project. This allows the public sector to use public feedback to set the parameters for the potential redevelopment of publicly owned land by a private developer, before the RFP is issued and a development partner selected. This can save the developer some time, because they’re proposing within the realm of what the community can accept.
Cordes: I think we’re entering a new era for public/private partnership projects. I say that because of the broad focus in just about every city, especially within city governments, on issues of equity and income growth and economic mobility. Cities that leverage public/private partnership projects will do it best by taking a fresh approach and taking advantage—in a positive way—of the demands of their constituents and avoid the old-school public/private partnership where deals were made behind closed doors without transparency. We can take advantage of a lot of the same tools we’ve been using for the past 10 or 20 years, but in a more thoughtful, innovative, and inclusive way.
Rothman: I see a lot of private capital providers interested in investing in Opportunity Zones, which gives an ability to defer and then shield capital gains from private equity investments in distressed areas. Opportunity Zones don’t provide the form of incentive that makes a previously unfinanceable project financeable, but they help attract interest, and they can be paired smartly with some of the other tools that have been used for public/private partnerships, such as tax increment financing to provide additional infrastructure, or an expedited public approvals process. Being in an Opportunity Zone can open the eyes of a new set of investors that may not have previously been interested in public/private partnerships.
Gantz: I read a lot about Opportunity Zones and their role in public/private deals. I’m somewhat skeptical of those kinds of tax-advantaged financing structures. They create incentives, but not necessarily ones that align with the best outcomes for public/private deals. One tool I’d like to recommend for those who want to educate themselves on how public/private partnership deals work differently from other kinds of deals is Successful Public/Private Partnerships: From Principles to Practices, the publication my product council put together.
How can cities best use PPPs to spur economic development?
Gantz: In mixed-use projects that include private-sector uses such as office buildings or retail or hospitality uses with public-facing benefits and improvements such as parks or museums or sporting arenas, it’s the intersection of the private-facing and public-facing uses that creates activity that spills out into the surrounding community and provides jobs and places for the community to enjoy. Successful projects integrate these kinds of private components with spectacular public spaces that draw people in and keep people around.
Cordes: The need for cities to do high-quality planning work in partnership with neighborhoods cannot be overstated. When cities can strategically aim their public/private partnership deals and dollars toward certain projects within neighborhoods that respect and catalyze the city’s plan, and if the plan is drafted well and has the blessing of the majority of the folks that live in the neighborhood, these kinds of investments are exactly what should drive the most impactful economic development.
Rothman: It’s important for municipal officials to have a clear view of what type of economic development they’d like to see, both in the city as a whole and in the different neighborhoods. In many cases, particularly in gateway cities, the goal is about the preservation and production of affordable housing, for which different forms of public/private partnerships, including tax credit programs and potentially Opportunity Zones, are potential tools. If the goal is to attract new business to a particular area—say, formerly industrial land—then different tools may be required, such as providing or enhancing public transit access.
Weinbaum: Cities can set aggressive goals around growth and identify areas where they want to spur economic development and then choose tools to make that happen, whether that means adjusting zoning rules to allow more development by-right or creating small area plans that will facilitate growth. In Washington, D.C., the city has not only set goals for certain neighborhoods where it owns parcels of land, but also moved District government agencies to new developments in areas where it wants to spur growth. That can create a higher daytime population in an underserved area.
Gordon: In downtown Jacksonville, we have a number of excellent sites for development, and we want world-class amenities that will continue to put our city on the map. Now, is the city itself the best entity to physically construct these amenities? Probably not. They need a partner. So, near our NFL stadium in downtown, the city of Jacksonville has partnered with Jacksonville Jaguars owner Shad Khan and his development team of Cordish Companies to build Lot J, a mixed-use entertainment district similar to other successful Cordish projects around the country. If you want an active live/work/play real estate development, you need developers with expertise in those areas. Examples include the Power and Light District in Kansas City [Missouri], or the Cordish Companies “Live!” entertainment districts in Philadelphia; Arlington, Texas; and elsewhere. So the public/private partnership is essential to have both sides succeed in their goals and generate the economic development we seek.
How can public/private partners build enthusiasm for these developments in the community?
Cordes: We need to engage members of the public who are more in the center. These folks don’t tend to show up to public meetings because they’re not so charged up, either on the pro-development or on the anti-development end of the spectrum, that they are going to protest. But the more we can get that engaged, reasoned view—the people who will negotiate a better deal for their neighborhood, persuade the developer to provide a few more public improvements, push for more equitable outcomes rather than completely reject various proposals—the better.
Gordon: These deals can be very complicated, and the average person walking the streets doesn’t understand how city government has to work or how a real estate development takes shape. So it requires leaders who can explain how a given public/private partnership makes sense by focusing on the outcomes. The elected officials have to understand the nature of the proposed deal and communicate that effectively to the media and the general public. For example, does Jacksonville need an entertainment district and more nightlife? I think the general public would say yes. So if we make it clear that the Lot J project is meeting this goal, and that the owner of the Jaguars is investing his own money and assuming risk, then the taxpayers can understand why it’s in their best interests.
Rothman: Extensive and meaningful community engagement is key. That means engaging somebody from the local community who knows how to tap into the network of community leaders in schools and churches and the like. There are also great technology tools now, which allow field workers to conduct intercept surveys on the streets with iPads or tablets. This can provide more effective and representative community input than the traditional 7 p.m. community meeting that tends to attract the usual suspects.
What do you wish more developers and investors understood about PPPs?
Cordes: We all have to accept the ever-growing constraints of the public sector. We see so many cities that have little capacity even in the realm of plan review and approvals. So many projects are delayed in closing because they can’t get plan approval or they can’t get a permit-ready letter because there are only two people in the planning department and they have 60 projects to review.
Weinbaum: Public/private partnerships take an incredible amount of time, and developers need to be flexible; plans as originally contemplated are going to change over time. I’m in the midst of negotiating a very complicated development finance agreement for a tax increment financing district that was approved for a project we proposed three years ago, and everything is evolving around us. You have to see where things are moving and be flexible.
What other trends are influencing PPPs?
Gantz: What municipalities have that developers want is developable land—whether that is a parking lot that can be converted into a parking structure with apartments on top, or a transit station or a bus yard that could be redeployed in a more efficient and effective way, or some other property that has air rights that could be developed. As current trends toward downsizing office space continue, municipalities can change the way they use their real estate assets. For example, large transit operators like the MTA in Los Angeles have noticed the value of the parking lots they own. In Sonoma County, where I live, there is a sprawling county administrative campus of one- and two-story buildings and surface parking that could become a wonderful mixed-use project that accommodates everything the county needs but also provides benefits to the community with housing or other complementary uses.
Weinbaum: In cities with a strong need for more housing, and particularly more affordable housing, city leaders have an opportunity to promote awareness of the housing crisis. They have an opportunity to suggest areas of development that might have previously been unlikely to support development. The more the press and the politicians and those who are in positions to publicize issues can keep the housing crisis in the forefront of people’s minds, the more potential there is to pivot toward bold solutions. For example, I don’t think that Minneapolis would have gotten rid of single-family zoning if there hadn’t been a well-publicized need to build more housing in that city.
Contributing Their Insights:
- Kacey Cordes, vice president, assistant director of project management, affordable housing, U.S. Bancorp Community Development Corporation, St. Louis; assistant chair, Public/Private Partnership Council (Blue Flight)
- Clay Gantz, partner, Manatt, Phelps & Phillips, San Francisco; vice chair, Public/Private Partnership Council (Gold Flight)
- Jake Gordon, chief executive officer, Downtown Vision Inc., Jacksonville, Florida; chair, Public/Private Partnership Council (Gold Flight)
- Eric Rothman, president, HR&A Advisors Inc., New York City; assistant chair, Public/Private Partnership Council (Gold Flight)
- Jamie Weinbaum, executive vice president, development, MidCity Development, Washington, D.C.; chair, Public/Private Partnership Council (Blue Flight); chair, ULI Washington