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Business Officer Magazine

The Power of P3

NACUBO’s Public-Private Partnerships program showcased construction projects that are big on collaboration.

By Anna Marie Cirino

Economic Oomph

In his keynote address on partnerships for economic development, Wilkes University President Tim Gilmour shared how his institution has actively fueled the economic revitalization of the city of Wilkes-Barre, Pennsylvania, with strategic and master plans that fully integrate the university with the city’s business district. Under Gilmour’s leadership, the university purchased the city’s former call center and transformed it into the institution’s central administrative headquarters. The once-vacant building now houses 100 full-time employees, an Einstein Bros. bagel shop, and an 80,000-square-foot athletic and recreation center. Gilmour also led an effort to bring a Barnes & Noble bookstore to a vacant building in the town’s center. While Wilkes University and neighboring institution King’s College each could support only a 4,000-square-foot bookstore, together they moved forward with a joint Barnes & Noble bookstore totaling 14,000 square feet. The two institutions also share some administrative services.

In further collaboration, Wilkes University created the Joint Urban Studies Center with five other local institutions, is working on a citywide WiFi network, and has partnered with the city to conduct a traffic study and to install security cameras. These and other accomplishments dovetail with the city’s progress toward redeveloping its waterfront, establishing business links to a regional rail and highway system, and refurbishing a landmark hotel.

During his presentation, Gilmour offered six steps for setting the ball in motion for P3 projects.

  1. Provide financial investment and find ways to leverage that investment.
  2. Prepare your constituencies for change.
  3. Supply leadership assistance, since most groups are not innately good at partnerships.
  4. Develop a plan based on sound economic and community development principles.
  5. Prime the pump with public money.
  6. Involve private developers and investors as quickly as possible, but be choosy in your selection of them.

Other important actions, noted Gilmour, include releasing control of non-mission-critical activities and focusing on how to increase service at lower cost. As for attributes of project leadership, Gilmour stressed trust, risk taking, compromise, humility, imagination, and leadership support (including that of trustees).

The Absolute Essentials

Two workshop sessions addressed the essentials of P3 projects. In her session on nontraditional models, Joan Millane, of Millane Partners, provided a solid understanding of a ground-lease transaction structure. Noting the driving elements that these partnerships have in common—available land, a ground lease, an economic engine, and an urgent need—Millane advised campus administrators to conduct a professional market survey to help determine project size, mix, and rental rates. In addition, noted Millane, a survey can help make the case for project approval to the institution’s governing board, the rating agency, the credit enhancer, and the lender’s underwriter. As the basis for underwriting and feasibility determination, the study is considered a transaction cost and is reimbursable to the institution at closing, said Millane.

Process was the focus of a second “essentials” session. Jeffrey Turner, of Brailsford & Dunlavey, covered key P3 processes: the needs assessment, including market studies and athletic facilities studies; and selection processes for planning, building, and maintaining facilities, including the request-for-proposal and request-for-quotation processes.

A Robust Roundup

A rich selection of topics rounded out concurrent sessions: issuing debt, designing and negotiating project financing, alternate financing models, and issues to address in operating and maintaining residential facilities. Institution case studies highlighted smart growth efforts that link with sustainability (Emory University, Atlanta); mixed-use facilities that spark redevelopment and reinvestment in the community (The Johns Hopkins University, Baltimore, and Franklin & Marshall College, Lancaster, Pennsylvania); and family fitness centers (Brevard Community College, Cocoa, Florida, and Minnesota State Colleges and Universities).

Roger Goodman, of Moody’s Investors Service, provided an overview of the agency’s approach in rating higher education P3 projects, in general, and student housing projects, in particular. Goodman also reviewed the potential credit impacts of other types of P3 projects outside of higher education, explaining why higher education projects differ from many government initiatives. Touching on new frontiers for projects, Goodman noted the rise of excess real estate, asset sale, and leaseback models, and reviewed how Moody’s measures the impact of a P3 project on an institution’s debt capacity.

Workshop program committee chair Robert Lovitt, executive vice president for finance and administration at Texas A&M University, Corpus Christi, moderated a panel exploring issues within the industry that are expected to affect the models and structures of P3 projects. Additional roundtable topics, driven by program participants, included:

  • creative financing with third-party equity;
  • the role of real-estate advisors in mixed-use, public-private developments;
  • value-enhancement strategies for campus redevelopment;
  • housing for urban satellite campuses;
  • partnerships for recreation center renovation;
  • packaging of projects for public-private ventures;
  • shared-use, high-tech facilities;
  • retail that works; and
  • collaborative decision making between student affairs and business affairs.

In addition to networking opportunities, an exhibit venue connected participants with representatives from various industries to learn more about the latest products and services.

P3 in 3D

Participants also had an opportunity to view thriving P3 projects in full dimension during the final day of the program, which featured the Georgia Institute of Technology, Atlanta. The day demonstrated how joint initiatives have become a critical component of the university’s long-term strategy during the past decade. Steve Swant, vice president of finance and administration, briefed participants on the challenges identified by Georgia Tech President Wayne Clough shortly after his inauguration in the mid-1990s. At that time, based on envisioning the university’s transformation, Clough set in motion the following actions:

  • Initiated a strategic planning effort.
  • Acquired new leadership in key areas.
  • Revamped budgeting and investment strategies.
  • Identified ways to partner with other entities. 
  • Set ambitious plans for academics, the administration, campus development, and capital generation

A campus tour of major complexes highlighted Georgia Tech’s P3 achievements:

  • Technology Square plays an important role in Atlanta’s midtown renaissance by serving as anchor to the city’s emerging high-tech core. As a unique blend of education, research, economic development, and hospitality, this pedestrian-friendly complex is home to Georgia Tech’s Global Learning Conference Center, Tech Square Research Building, Economic Development Institute, Center for Quality Growth and Regional Development, Barnes & Noble @ Georgia Tech bookstore—and a host of retail partners and parking options. An alternative-fuel trolley connects Technology Square with the institution’s main campus and other midtown business centers.
  • Biotechnology Campus serves as a high-profile focal point for Georgia Tech’s involvement in bioengineering, biomedicine, and related fields. The four-building BEM (bio-technical, environmental, and molecular disciplines) complex, totaling one million square feet, brings more than 200 faculty and 2,000 students together in a multidisciplinary format. (The biomedical engineering building is a joint endeavor with Emory University.)
  • Technology Enterprise Park, still under construction, is a bioscience and technology research park designed for emerging and established companies. Comprised of four five-story buildings, the park is being built to meet the space requirements of a range of bioscience and technology companies. The first building will take occupants this summer.

Patrick McKenna, Georgia Tech’s executive director for affiliated organizations, discussed the multitude of funding strategies employed in these various projects, while Jay Bellwoar of UBS Securities explained the financing structures used. Kevin Byrne, chief investment officer of The University Financing Foundation, discussed how the overall deals were put together and outlined project success factors. Chief among those factors, said Byrne, is that all stakeholders realize the purpose of collaborative initiatives: to promote economic development for the city and the state.

ANNA MARIE CIRINO is associate director, financial management policy, at NACUBO.