David Garafola has noted that the idea of public-private-partnerships is not a new concept although it has become very much the trend in today’s world on creative financing needs in the public sector.  I was involved in such a project with a lease-leaseback in the 1980’s that brought four high-rise residence facilities and an 800-seat dining facility to Towson University when the campus desperately needed to bring more residential students on campus or feel the impact of negative enrollment.  For any public/private partnership to be successful, all parties must do their understand their relationship and do their homework in the development of a comprehensive feasibility study at the onset the project. In my circumstance, the public entity was a public university.  Therefore, the university leadership is charged with the need to understand that they will have to invest time, energy, and resources at all phases of the project. However, the initial part of any deal is the creation of a vision.  Creating a vision is not always easy, and it is crucial that the vision is shared. Ideally, property owners, residents, and area anchors such as churches, colleges, hospitals, homeowners associations, and other stakeholders will have “buy-in” because they have a stake in the outcome. Creating a vision involves building consensus and including all the stakeholders, even those who may be naysayers. By casting a wide net and giving all the stakeholders—including potential partners—an opportunity to help craft the vision, less possibility exists for opposition to a project. Public hearings, charrettes, visioning exercises, and other tools for involving stakeholders in the visioning process should be used to ensure the broadest outreach. Involving the media is another key factor for two reasons. First, it helps get the message out about the visioning process, and second, it helps form an alliance with the media, which will be crucial in articulating and publicizing the vision once it is created. 

The next significant step of the leadership is to have a clear understanding of the limitation of your resources and the need to choose your partners carefully as essential to the development of an effective feasibility study.  Clearly, the partnership selection can be a primary driver and one of the most critical aspects in the overall success of the feasibility analysis of any deal that should be of paramount consideration as you proceed into your analysis. Proven success is key to future success!  

Selecting your Partner:

First and foremost, the private partner needs to be prepared for a transparent process. Although parts of the process exist in which certain information is not disclosed, particularly during the competition over project bids, the developer must be prepared to make its numbers, its name, and itself open to public scrutiny. The recognition and acceptance of this basic tenet should precede all other steps that the developer will take. If such transparency is not acceptable, the developer should walk away from the project. 

 While the public partner is establishing clear-cut goals and projects, the private partner can be preparing by meeting with investors to explain the nature of the public/private partnership. As in all development processes, the developer must underwrite the market and determine interest. The public partner should have provided substantial background information during its preparatory phase. The developer must also identify and assess the opportunity for the project and assess whether it is feasible. Increasingly, with the help of legislative authority the private partner submits unsolicited proposals conceptualizing and designing the use of a public/private partnership, which then is implemented with public approval. The developer needs to make an internal assessment of the resources that are required to accomplish the project, including such items as potential staff, assessment of risk, potential deal structures (whether they will work for a fee or be partners in the venture), potential investors, and political and community leadership and working relationships with leaders. 

Feasibity Study:  All successful projects start with a vision. Without a vision, the project will most likely fail. The vision is the framework for project goals and serves as the benchmark to ensure the realization of joint objectives.  Here are the simple steps that each party must understand and be prepared prior to any deal:

Know Your Partners. This getting-to-know-you stage will ease the subsequent stages in the development process. During the preparatory, or due diligence, stage the developer should familiarize itself with the jurisdiction’s plans, approval processes, and length of permitting processes. The developer should assess the public partner’s ability to deliver and to commit its resources up front. 

Get the Right Team. If the developer decides to continue with the partnership, the developer should assemble a team who brings insight and experience with the public partner. If the developer is new to the community, it would be valuable to find local expertise to assist in the process. The developer needs to be prepared to be an explorer and adapt to what may be discovered.

Sustaining the vision: A vision is not just pretty pictures depicting the ultimate outcome. It involves a strategy for implementation, which includes funding mechanisms (public and private), potential partners (and their responsibilities), and an agenda or time frame for achieving the vision (making the project a reality). These components are all critical for realizing the vision and ensuring that it gets off the boards and onto the ground.

Partners should make a practical analysis of market conditions and demographics to ensure that the vision is neither too grand nor too small. An important component of the vision is specifying the scale of the project or projects that provides people with an understanding of what is going to happen.  Moreover, involving the stakeholders will help bring reality to the plans by establishing a collective vision and creating community buy-in for the project. The most important component of a vision is ensuring that it can endure the test of time. Most development or redevelopment projects are long term and may span several political administrations. Thus, the vision that is created is not just the whim of the current administration, but represents key community and stakeholder buy-in that will help it endure. A shared vision that is created and embraced by key stakeholders will stand the test of time and will persevere through implementation.

Start the due diligence process: Although due diligence is part of the preparatory stage of a project, all partners must continue to understand all the issues—technical, social, and financial—of a project. The partners need an understanding of the technical aspects of the project and REALIZE AND ANTICIPATE that things will change.  Public/private partnership projects will fail when both sides do not continue to invest the resources needed to keep the project going.

Share information: The development process can be complicated and involves many moving parts. Clearing title for the land, environmental planning and permitting, meeting local land use codes and requirements, proper design and site planning, and complying with design standards and guidelines are just a few of the many details that need to be attended to when completing a project. All the parties need to know the status of each phase and aspect of development. All consultant work needs to be shared—and shared early. Information needs to be presented in a clear and transparent format so that everyone knows what is happening at all phases.

Adopt scenario planning: What if scenarios with the partners assist with each parties understanding your partners’ limitations. For example, if part of the deal depends on long-term public investment, having a backup plan may be important in the event that the funding falls through because of budget cuts, changes in administrations, or emergencies.

Pursue creative public/private finance plans: One of the great qualities of the public/ private partnership approach to development is the tremendous creativity available to solve financial and development problems. The public partner, its public/private finance and development adviser, and the selected private partner must structure the financing plan for each of the public and private building components; the plan often includes some combination of the following eight elements:

1. Multiple sources of public and private financing from the primary and secondary public and private partners or other related entities, such as county, state, and applicable federal agencies; local Business Improvement District (BID); and other public entities. Potential secondary private partners include construction companies and facility operators.

2. Public/private financing instruments, such as revenue bonds, general obligation bonds, and soft second mortgages.

3. Long-term lease obligations by the public partner.

4. Government-owned land.

5. Credit enhancement, bond insurance, or both.

6. Development, investment, and operational incentives from different levels of government.

7. Techniques to reduce development costs; for example, the public sector can reduce the parking ratio required by the private partner.

8. Techniques to enhance cash flow, such as tax abatements, surcharges, and lease naming rights.