New Opportunities for P3s on Military Installations NCPPP Conference July 2014 Barry Scribner Co-President, Public Institutions JLL

Context of the Current Environment Significant funding reductions Demands for efficiency Post-9/11 security requirements Force reductions = excess infrastructure Future BRAC ??? Multiple directives for energy efficiencies and energy security 2 Public Private Partnerships Infrastructure optimization Enhanced Use Leasing Sharing services with local communities Privatization Innovative Financing

Military Installations: A SWOT Analysis 3 Helpful to the MissionHarmful to the Mission Internal Strengths  People – strong leaders and experienced workforce  Ownership of an enormous and valuable portfolio  Massive recent recapitalization of infrastructure portfolio Weaknesses  Sub-optimized stationing footprint across the enterprise  Sub-optimized footprints on individual installations  Limited expertise in understanding and working with capital markets (“deal making skills”)  Institutional aversion to risk; not entrepreneurial External Opportunities  Create optimum mission-based arrangement  Mothball energy inefficient facilities  Make unused/non-excess facilities available for uses that complement the mission  Partnering on large-scale renewable energy  Energy Savings Performance Contracting  Share redundant services across installation boundaries Threats  Historically inadequate funding  No legislative support for a new BRAC process  Reduction in Basic Allowance for Housing (BAH)  Unpredictable national-level capital budgeting process  Vulnerable power grid  Vulnerable cyber infrastructure  Incomplete / constraining suite of authorities

Mutual Benefits from Partnerships 4 Benefits to the DoD Leap-ahead innovation (best practices) Innovative financing from capital markets Benefit from industry’s efficiencies Benefit from industry’s deal making skills Industry has other skills and experience not resident in the federal workforce Reduce overhead costs Reduce long-term personnel costs Create a surge capacity Benefits to Industry/Communities Competitive business environment drives efficiencies Government is a good credit risk????? Federal business can be counter-cyclical to national economic trends Potentially large untapped market Creates great opportunities for small business

Potential Partnership Opportunities Services Base Operations Support Information Technology Security Finance and Accounting Morale, Welfare, Recreation Medical Services Transportation Services Library Services Vehicle & Aviation Maintenance Training and Education Lodging Facilities/Infrastructure Barracks Modernization Office Space US Army Corps of Engineers Civil Works Infrastructure Divesting of Unused Assets Enhanced Use Leases Utilities Water Supply Wastewater Treatment Energy Security Renewable Energy 5

Challenges to Partnering Organizational Identifying predictable revenue stream “Inherently Governmental” Aversion to Risk Lack of trust between government and industry Memories of the A-76 process Resistance to change Least cost mentality vs. best lifecycle value –Asset Management is critical Human Capital Training in private sector finance and capital markets Threat to job security Trending losses of experienced personnel (retirements, etc). Limited deal making skills Mismatch of skills and emerging requirements Legislative/Policy Authorities Budget Scoring Policy Federal procurement process

Elements of a Successful Partnership 7 Market Demand (Programs/Cash Flow/Savings Opportunities) Technical and Financial Expertise (Skills) Investment (Money)

Competing Interests within a Partnership 8 Capital Programmatic and Quality Control Private Sector Interests  Quick financial return  Building to commercial standards  Discipline of market forces Government Interests  Patience, long-term view  Building to institutional standards  “No fail” reliable operations  Operate in incremental funding environment

Conclusion Process We need to remove obstacles to creating partnerships (the Army, Navy, Air Force, Marines, Industry, and National Policy Makers) Invest in advanced Asset Management capability to maximize efficiency People Identify senior champions for every partnership Be aware of potential pending “brain drain” Retain the best deal structuring expertise available Profit In a partnership, profits are shared Seek maximum opportunities within the DoD environment 9