As public-private partnerships increase in popularity, commercial real estate professionals who want to leverage this unique development model would be wise to take the time to understand the nuances of how, why and when they work.
Because understanding how to make them happen demands a deeper and more detailed appreciation for why they are valuable in the first place.
The why
Ultimately, bringing together the entrepreneurial energy and creative dynamism of the private sector with the resources and momentum that municipalities or civic organizations can bring to the table is a winning formula. When done correctly, it can result in the creation of influential and even iconic destinations.
Specifically, the benefits of an effective public-private partnership begin with the bottom line: the resources that the public sector can contribute to a project can transform a pipe dream into a prime development opportunity. It is what those dollar signs can do that is really exciting, however. More than simply getting a project off the ground, public funding can make it possible to design and develop projects on a significantly larger scale. Because of the private equity required for privately funded commercial real estate endeavors, larger projects (and those projects that are perceived as riskier) are often mothballed in favor of smaller developments with a more modest risk-reward curve. With public equity in the equation, the potential is there to create the kind of landmark developments that can exert regional influence.
Larger projects also have the legroom to utilize complementary uses in a way that can create a synergistic effect. They have more flexibility to utilize strategic co-tenancies, and they can more easily achieve the critical mass that will allow them to become both a true destination and a self-sustaining commercial powerhouse. While smaller projects rely on surrounding context, larger projects can become that context and create their own memorable and defining sense of place.
Larger public-private projects are also more likely to feature green spaces and public amenities like parks and public squares. Issues surrounding the public good loom large in these projects, because public monies must be dedicated to projects that serve “public purposes.” Investments in infrastructure upgrades and additions such as new or improved roads and utilities certainly qualify in that respect.
The public good is more than just an arbitrary aspiration, it is also a valuable tool for mustering public sentiment and community support for a project—another potential advantage of the public-private partnership model. Both private citizens and civic leaders can serve as a mechanism for support and engagement, instead of obstruction and pushback. Public-private partnerships are also the best (and sometimes only) way to move projects forward in challenging locations such as dense urban environments, or sites adjacent to municipal facilities and other public assets/interests.
To fully take advantage of those potentially formidable assets, developers need to be keenly aware of the best practices for closing deals and securing public-private partnerships:
Prioritize private investment
One model we have had firsthand success with in several different markets is approaching local business leaders first and working with them to get some “boots on the ground” support and investment. This helps to take some of the “heat” off the municipality. Once we progress to the planning phase with the municipality, public funding will then be brought into the fold in the form of TIFs or other similar instruments. Once local business and community leaders are on board and enthusiastic about a project, it becomes much easier to bolster public sentiment and secure that financing.
Fill the gap
Do not be greedy. Your goal is not to wring every last public dollar out of the municipal coffers, but to secure just enough funding to make your project viable. This not only improves your chances of approval, it also means that you can defend every dollar that you request and receive. Along those lines, be prepared to do just that: to justify your request with detailed supporting documentation. Remember to approach this as if you are working to secure the buy-in from a business partner, not a financier. In too many cases, public-private partnerships are treated as exclusively financial arrangements. In reality, the best examples of these partnerships are truly collaborative in nature. They yield the kind of developments that don’t only provide commercial and social benefits to a community, but also create true public assets like quality residential options, higher density relative to public services, improved transportation infrastructure and, potentially, a new tourism attraction.
Legitimize the project
Whenever possible, get some foundational tenants on board early. An early commitment to a project not only demonstrates the legitimacy and credibility of the project, it also erodes opposition and gets community members and civil servants alike thinking positively about real possibilities instead of theoretical proposals. Early tenant traction—even if it is something as simple as a familiar name or easily recognized logo on a brochure or a brief—can be enormously important for securing financing and can act as the beginning of a snowball rolling down the mountain and gathering size and speed.
Many of the industry’s most innovative and influential developers have made public-private partnerships an important piece of their overall professional strategy. They have learned what works and what doesn’t, and they have recognized that securing these public-private partnerships is a skill—and a skill that can be learned. The payoff for learning that skill can be immense, not only for developers, but for the communities that continue to benefit from iconic and defining new destinations and extraordinary new public resources.
Don Cardon serves as CEO of Phoenix-based Cardon Global, a strategic consulting firm that specializes in imaginative partnerships that enable local enrichment through transformative, highly energized real estate developments. He can be reached at [email protected].