STCL – Advanced Real Estate Law Conference Public/Private Partnerships: Basic Concepts and Examples of P3s presented by: Cassie B. Stinson

1. Public/Private
Partnerships:
Basic Concepts and Examples of P3s
presented by:
Cassie B. Stinson
BoyarMiller
STCL – Advanced Real Estate Law Conference June 7, 2013

2. What are P3s?
Public Private Partnerships (P3s) Are:
 Projects ranging from on-going collaborative efforts with
roughly equivalent participation by public and private sector
participants to turn-key projects for providing government
services and/or infrastructure.
 Often involve projects that are too massive and complex to
achieve without coordinated participation by public and
private participants
 Often involve more than two parties to project agreements
 Type of projects determines whether private sector
participant is for-profit or non-profit.

3. What P3s Are Not
Public Private Partnerships (P3s) Are Not:
 Not new: the nation’s first toll road was the Lancaster
Turnpike in Pennsylvania in 1793; Erie Canal; and
Transcontinental Railroad
 Not for the faint of heart nor the short of patience
 Not formal partnerships under law

4. Why are there P3s?
Government Needs
 Tight budgets
 Lack of expertise within government staff
 Public debt issues:
– bond capacity is maxed out
– bond covenants too restrictive
– bond transaction costs too high
– public vote needed for issuance of debt
 Procurement processes
 Labor inefficiencies due to procurement requirements,
pension obligations, lack of at-will labor force
 Quick delivery of services or infrastructure

5. Why are there P3s?
Government Objectives
 Job creation
 Affordable housing
 Expansion or restoration of government infrastructure
 Health, education
 Quality of life
 Incentivize private sector assistance in achieving local
governmental objectives

6. Why are there P3s?
Private For-Profit Sector Needs
 Lack of other work opportunities during recessions
 Credit-worthy clients
 Entitlements for large scale development
 Predictability, stability in market place
 Public incentives for project site selection

7. Why are there P3s?
Private Nonprofit Sector Needs & Objectives
 Mission and objectives often mirror public objectives
 Public resources necessary as supplement to philanthropic
funding
 Donor preference for private control of project
 Donor preference for capital expenditures

8. DBFOMO
Design/Build/Finance/Operate/Maintain/Own
Private Nonprofit Sector Needs & Objectives
 Private DB with public FOMO is not a P3
 F in public sector:
– tax exempt is usually cheaper debt service
– transaction costs higher in issuance of public debt
– bond covenants can prevent revenue maximization
– process for issuance of public debt can be slower
 O&M in public sector
– subject to annual appropriation (“If I Had a Hammer”)
– O&M declines in tight budget years
– Cap Ex reserves are tough in public budgets, deferred maintenance is
common even over the good years
– public estimate of project costs often do not address costs of O&M
over useful life of project improvements

9. DBFOMO
Design/Build/Finance/Operate/Maintain/Own
Private Nonprofit Sector Needs & Objectives
 O&M in Private Sector
– lower labor costs
– difficult and unpredictable for private nonprofit fundraising
 Ownership issues
– sovereign immunity for premises liability
– property tax liability
• if public sector is owner and user, property is tax exempt
• if private sector is owner and public sector is user, property loses
its tax exempt status
• Public entity gets adverse publicity from incurring property tax bills
– IRS rules prohibit private landlords from taking depreciation on
improvements in “financing” leases

10. Ten Principles for P3s1
 Prepare properly
 Create, maintain shared vision
 Understand partners and key players
 Define each partner’s risks and rewards
 Establish decision-making process
 Make sure each partner does his homework
 Consistent and coordinated leadership
 Communicate early and often
 Fair deal structure
 Trust as a core value
Corrigan, Mary Beth, et al, Ten Principles for Successful Public/Private Partnerships. ULI-Urban Land Institute, 2005.
ULI Catalog No. T26.

11. Statutory Authority for Gov’t Participation2
 Tax increment financing: property, sales, liquor
 Grants of public funds
 Revenue sharing: user fees
 Use of public land: sales at below market for specific public
purposes
 Streamlined entitlement and permitting process
 Fee waivers
 In lieu payments
 Eminent domain
Wilson, Reid, et al, Development Agreements: Basics and Beyond, Advanced Real Estate Law CLE,
South Texas College of Law, June 2, 2012.

12. EXAMPLE: Park Development
Discovery Green – Houston, Texas
 Parties
– City of Houston; Discovery Green LGC; Discovery Green
Conservancy
 Project
– $120 Million, 12-acre public park, heavily programmed and privately
operated at above-City standard criteria; development phase
completed 2007if public sector is owner and user, property is tax
exempt
 Term
– 75 years
 Public Participation
– 2 blocks of land
– abandonment of street ROW at no cost (subject to u/g easement for
utilities)
– Management fee of $750,000 per year, with escalator

13. EXAMPLE: Park Development
Discovery Green – Houston, Texas
 Private Non-Profit Participation: >$100 Million
– Funds to purchase 2 blocks of land
– Funds to design, build all park facilities
– Funds to operate and maintain park, including all programming
– Transfer of all 4 blocks of land to City’s LGC subject to park
restrictions and reservation of easements for commercial use (revenue
source limited to use for park O&M)
 City’s Goals
– Support convention business at George R. Brown Convention Center
• develop amenities for people attending conventions
• outdoor exhibit space for conventions
– Quality of life: increase green space in Houston’s CBD
– Stimulate economic development and increase property tax revenue
on surrounding properties
– Fast-track development and opening of park project

14. EXAMPLE: Park Development
Discovery Green – Houston, Texas
 Conservancy’s Goals:DBFOM, not Ownership
– Quality of life: increase green space in CBD; maintain an above-standard
park for the benefit of City’s residents and visitors
– Long-term control of project to protect private sector
 Hammer
– Conservancy has right to enforce deed restrictions, including possible
reversion of title for City’s failure to pay management fee
– Conservancy can cancel Convention Center’s “free days” for use of
park facilities
– O&M Agreement is enforceable by Conservancy as a “contract for
goods and services”, for which City’s sovereign immunity is waived by
law
– Upon City’s creation of HFC, the $750,000 annual management fee
may have been assigned to HFC, whose contractual payment
obligations are not subject to annual appropriation

15. EXAMPLE: Student Housing
University Pointe – Portland, Oregon
3
 Parties
– Portland State University; American Campus Communities (ACC), a
REIT – for-profit developer; American Campus Equity (ACE),
subsidiary of ACC -- non-profit operator of student housing; TriMet
 Project
– $87.8 Million, 16-story, 282 units, 978 bed, LEED Gold on-campus
student housing tower; development phase completed 2012
 Term
– ground lease of 65 years +two 10-yr. renewals
 TriMet Participation
– Acquisition of land by eminent domain in connection with terminus for
extension of light rail corridor
– Sale of land to PSU at cost below acquisition/demolition costs as a
TOD project, due to no parking in project and proximity to terminal
station (increased ridership)

16. EXAMPLE: Student Housing
University Pointe – Portland, Oregon
3
 PSU Participation
– Issuance (through Oregon University System) of $8 Million tax exempt
bonds for purchase of land from TriMet
– Long-term ground lease to ACC for ground lease rents equal to annual
debt service
– Grant of “exclusive” right to develop and operate all new/future student
housing on campus (but not on surrounding private property); prohibits
PSU’s support of existing on-campus housing unless PSU provides
marketing study showing “adequate demand”
 ACC Participation
– ACC provides DB services for a fee
– ACC provides O&M services for a fee
– ACC pays ground lease rents of $569,000/yr. to cover PSU’s annual
debt service
– Fees and rents are recouped from student rent revenue (rents range
from $2.01 – 2.72/ft., with parental guaranties)
– ACE provides F (financing) by raising equity in the stock market:
lower cost of funds than third party construction/permanent fund

17. EXAMPLE: Student Housing
University Pointe – Portland, Oregon
3
 ACC Participation
– ACC provides DB services for a fee
– ACC provides O&M services for a fee
– ACC pays ground lease rents of $569,000/yr. to cover PSU’s annual
debt service
– Fees and rents are recouped from student rent revenue (rents range
from $2.01 – 2.72/ft., with parental guaranties)
– ACE provides F (financing) by raising equity in the stock market:
lower cost of funds than third party construction/permanent fund
– ACC has Ownership of improvements plus FF&E during lease term; at
end of the term, possession of land plus title to improvements and
FF&E revert to PSU

18. EXAMPLE: Student Housing
University Pointe – Portland, Oregon
3
 PSU’s Goals
– Increase on-campus housing units to house 25% of enrollment
– Avoid financial risk for DB and O&M; obtain eventual Ownership
– Lacking core competence in student housing leasing/management
– “Off balance sheet” way to pay for cost of construction without
impacting OUSystem bond capacity
– Seeking student housing as TOD (eliminates burden of on-campus
parking)
 ACC’s Goals
– Developer fees; profitable NOI
– 13% return for investors per 2012 annual report
– Expansion of company’s business into Pacific Northwest
Macht, William P., A Public University/Private REIT Partnership in Portland, Urban Land magazine published by
Urban Land Institute, March/April 2013.

19. EXAMPLE: Incubator for Emerging Arts Groups
MATCH – Houston, Texas
 Parties
– City of Houston; Houston First Corporation, a local government
corporation of City of Houston; MATCH: Midtown Arts & Theater
Center-Houston, a Texas non-profit corporation; Mid-Town Main LLC,
a Texas for-profit developer
 Project
– $25 Million complex containing 4 flexible/multi-use exhibit and
performance facilities for arts tenants and third party users; office,
rehearsal and storage space for arts tenants; related amenities such
as food & beverage service facilities; booking services and ticket
office, covering one full city block at 3400 Main Street
– Shared parking garage to be jointly developed by neighboring for-profit
developer on land adjacent to MATCH facilities, and shared per
parking easement appurtenant to MATCH project
– Development phase scheduled to occur January 2015

20. EXAMPLE: Incubator for Emerging Arts Groups
MATCH – Houston, Texas
 Term
– 30 years plus one 30-year renewal option
 Public Participation
– Upon acceptance of completed project, City will master lease the
MATCH facility to MATCH for $1/year
– City has entered into a Chapter 380 Economic Development
Agreement with MATCH, and indirectly to benefit Midtown Main for
shared parking garage: $6 Million rebate of sales and liquor taxes
generated in Impact Area, payable annually not to exceed 15 years
– City to abandon Berry Street ROW at no cost to Midtown Main or
MATCH, to facilitate construction of shared parking garage
– HFC to provide funding grant, from HOT taxes and other HFC revenue
from convention and parking facilities, $450,000 per year for 8 years
with opportunity for possible renewals to be negotiated

21. EXAMPLE: Incubator for Emerging Arts Groups
MATCH – Houston, Texas
 MATCH Participation
– Acquisition of land for $2 Million, purchase money mortgage amortized
from private sector donations
– Provide DBF: raise $25 Million in private sector donations to design,
build MATCH facility
– Ownership: On completion of construction, MATCH to donate
complex to City and assign parking easement covering shared parking
garage on adjacent tract
– O&M: MATCH to sublease office and support space to arts groups;
handle bookings of exhibit and performance spaces; operate and
maintain complex; using revenues generated by subleases to arts
tenants and space rentals from bookings of facilities
– MATCH to create 8 out of total 25 FTE job count requirement under
Chapter 380 Agreement
– MATCH to share 50-50 with Midtown Main in tax revenue sharing
under Chapter 380 Agreement

22. EXAMPLE: Incubator for Emerging Arts Groups
MATCH – Houston, Texas
 Midtown Main Participation
– DBFOMO of shared parking garage on Midtown Main blocks at 3500
and 3600 Main Street
– Grant parking easement to MATCH, providing all parking needed for
MATCH to meet parking code requirements and obtain building
permits for construction of MATCH arts & theater complex
– Chapter 380 Agreement contemplates that Midtown Main will develop
retail and commercial, including hospitality facilities on its 2 blocks, in
addition to shared parking facilities
– Midtown Main to create 17 out of total 25 FTE job count requirement
under Chapter 380 Agreement
 Public Sector Goals
– Stimulate economic development and “place making” in Midtown area
– Support cultural and arts groups and the public arts and theater
facilities they need

23. EXAMPLE: Incubator for Emerging Arts Groups
MATCH – Houston, Texas
 Private Sector Goals
– Minimize development risks by collaborating with each other in joint
development of compatible projects in creating an entertainment
destination
– Minimize risk of negative NOI during O&M for an extended
stabilization period by Chapter 380 revenues and, in MATCH’s case,
by HFC grant funds
– In Midtown Main’s case, assure base level of parking revenue in
shared parking garage by providing parking easement to MATCH at
market rates per space for patrons of MATCH complex events and
productions
– In MATCH’s case, develop and operate small exhibit and performance
venues and office/admin space that are suitable for the needs of small
and emerging cultural organizations, which are not currently available
in City owned facilities

24. Questions?
BoyarMiller
713.850.7766
cstinson@boyarmiller.com