1. Cost Savings on Smaller P3 Projects
How to Structure a P3 to Create Genuine Value for Projects Starting at $20 Million and Up

2. Nationally recognized not-for-profit
Maximizes public benefit when using P3
Access to Tax-Exempt financing
Issues bonds
Owns the project on behalf of Public Entity until debt is retired
Transfers project at no additional cost to public agency

3. Commodore Duchess Apartments
University of Washington, WA
Bonds were issued in 1995
$7,385,000 in tax-exempt bonds
Renovation of 1927 Hotel which was converted to 139 units of student housing

4. UAF Woods Center Food Services
University of Alaska Fairbanks, AK
New Student dining facility and activities office
$23,649,000 in tax-exempt bonds
Mixed New-Construction (34,000 sq. ft.) and Rehabilitation (6,000 sq. ft.)

5. Center for Urban Waters
Tacoma, WA
State-of-the-art marine research and testing facility
LEED Platinum
Finalist for ULI Award for Excellence
$37,840,000 tax-exempt bonds

6. Riverside County Courthouse
Indio, CA
90,363 square foot, three-story office building and law library
LEED Platinum
$44.38 million tax exempt Bonds
Early completion and $4.2 million in cost savings

7. Other Examples Patricia Bracelin Steele Building $62,540,000
Radford Court Apartments
$53,125,000
Pacific Place Parking Garage
$47,000,000
King Street Center
$78,275,000
Lake Tapps Parkway
$17,000,000
4225 Roosevelt
$29,858,000
The Gateway at Alhambra
$43,710,000
Issaquah Highlands
$63,500,000
Redmond City Hall
$39,230,000
Bothell City Hall
$49,625,000
Edna Lucile Goodrich Building
$56,805,000
Nordheim Court
$34,085,000

8. What’s different about smaller projects?
Lower project cost
Smaller projects cannot afford higher cost of conventional debt and equity
Smaller projects have little room to accommodate the cost of the availability payment approach to O&M

9. Availability Approach
Comparing Models
New American Approach
Availability Approach
Ownership
Through an “On-Behalf-Of” not-for-profit
Public ownership with private control
Financing
100% tax exempt debt
Equity and taxable debt
Development
Private build-to-suit; Integrated Delivery with incentives to perform
Operations
Private, cost-based & subject to performance
Private availability-based
Maintenance
Privately contracted dedicated repair and replacement reserve
Privately delivered and funded through long-term public obligations
Occupancy Cost
Lowest in the industry
Generally higher to cover private guarantees
Property Tax
Usually exempt
Typically subject to property tax

10. Four Principles How to Maximize Public Benefits in P3 Delivery for Social Infrastructure
Use Tax-Exempt Debt
Use Private Development
Align Risks and Rewards
Maintain Public Control

11. Four Principles: The Use of Tax-Exempt Debt
Tax-Exempt Financing
Taxable Financing
100% Tax Exempt Debt
Combination of Taxable Debt and Equity
Required Debt Coverage Ratio is 1.0
Required Debt Coverage Ratio is 1.1 or higher
A Single Loan
Two Loans – A Construction Loan and then a Permanent Loan
More accepting of Subject to Appropriation and Abatement language
Difficulty with Subject to Appropriation and Abatement language

12. Four Principles: Use of Private Development
Developers Work Efficiently – Time is Money!
They Know How to Control Costs
In-House Experience
Rely Less on Consultants

13. Four Principles: Alignment of Risks and Rewards
Pay partners fairly for what they bring to the project
Do not pay for what they do not bring to the project
Private partners must be allowed to freely apply their knowledge, skill, management and experience
Provide incentives to create efficiency
Keep private property management terms short to keep performance and pricing competitive.

14. Four Principles: Maintain Public Control
The Public Agency pays for the project therefore it should have rights equivalent to ownership
The Public Agency should have the right to take control of the SPE at any time should it desire to do so
After the Public Agency finishes paying for the project they should be able to assume ownership without cost or delay

15. The New American Approach in Eight Steps

16. Public Facilities Group
The New American Approach: Step 1: Selecting the Not-for-Profit Partner
Public Agency
Public Facilities Group
The Public Agency selects a not-for-profit to assist in a Public-Private Partnership
RFQ/RFP
Role of the Not-for-Profit
Tasked with creating and staffing the Not-for-Profit Single Purpose Entity (SPE)
That SPE will incur the projects debt through a tax-exempt bond sale
That SPE will manage and own the facility on behalf of the government until debt is retired
When Debt is retired the SPE transfers ownership to the Public Agency at no cost and without encumbrance

17. Qualities of the Not-for-Profit
Experience In:
Structuring and Overseeing Complex Real Estate Development
Tax-Exempt Bond Finance and Bond Compliance
Asset Management
The Not-for-Profit earns a small fee paid from bond proceeds for its work. It is not paid a consulting fee by the public agency.

18. Public Facilities Group
The New American Approach: Step 2: Selecting the Private Development Team
The Public Agency, with assistance from the Not-for-Profit, selects the development team through a RFQ / RFP process.
Public Agency
Public Facilities Group
RFQ/RFP
Developer
Architect
Development Team
General Contractor

19. Best Practices in Public Procurement (After the Decision to Use an Alternative Development Process)
Issue an RFQ
Identifies team members
Asks for their experience on similar projects
Asks for references
Does not ask for design concepts or costs

20. The RFP: Six Important Questions
Issue an RFP for the Development Team
Who are the Team Members
What are their time commitments & experience on similar projects?
How does the team expect to create public value?
Will they accept the terms of the pre-development agreement and the development agreement?
Ask for them to bid all fees and soft costs based on an assumed per square foot hard cost.
Ask them to confidentially provide financial information and litigation history.

21. The RFP: Do Not ask for Architectural Renderings!

22. The RFP: Digging Further
Interview the Teams
Also conduct separate interviews for each team member
Visit their projects
Examine their financials and litigation record in the team’s offices
Review references from other Public Agencies

23. The New American Approach: Step 3: Design and Predevelopment
The Developer, Architect, and General contractor come together with the Public Agency and the Not-for-Profit to advance the design from concept drawings, through schematics and design development, arriving at a Guaranteed Maximum Price (GMP)
The Developer secures approval of all Entitlements
The Public Agency and the Not-for-Profit negotiate a long term lease
Public Agency
Public Facilities Group
Developer
Architect
Development Team
General Contractor

24. The New American Approach: Step 4: Financing Contracts and Bond Sale
The Not-for-Profit creates a Special Purpose Entity (SPE) to own and finance the asset
The SPE, the Public Agency, the Development Team and the Finance Team produce all Financing Documents
A lease agreement is prepared and executed
Tax-Exempt bonds are sold to finance the project
Public Agency
Public Facilities Group
Special Purpose Entity
Developer
Architect
Development Team
General Contractor

25. 63-20 Bonds
Revenue Ruling allows a not-for-profit corporation to issue debt to finance a facility for tax exempt purposes, provided:
A local governmental entity endorses the financing
The facility will be occupied by a governmental or tax exempt entity
The facility reverts to the ownership of the endorsing local governmental entity at the retirement of the debt

26. The New American Approach: Requirements for Starting Construction
Design and Pre-Construction
Construction
Public Entity
Public Facilities Group
Public Entity
Public Facilities Group
Lease
Special Purpose Entity
Special Purpose Entity
Developer
Architect
Developer
Architect
Development Team
Development Team
General Contractor
General Contractor
GMP
Lease
Entitlements
Sub Contractors

27. The New American Approach: Step 5: Construction
After the Bonds are sold, the Special Purpose Entity (SPE) gives the Development Team a notice to proceed
The Development Team begins construction
The Not-for-Profit staffs the SPE through a Development Services Contract
During construction, the SPE and the Public Agency collaborate to issue an RFP for property management services
Public Agency
Public Facilities Group
Lease
Special Purpose Entity
Developer
Architect
Development Team
General Contractor
Sub Contractors

28. The New American Approach: Step 6: Construction Completion
Public Agency Lease payments begin at Certificate of Occupancy
After the completion of all punch list items the SPE issues a Certificate of Final Acceptance.
The SPE enters into the Property Management Agreement with the selected property manager
Public Agency
Public Facilities Group
Lease
Special Purpose Entity
Developer
Architect
Development Team
General Contractor
Sub Contractors

29. The New American Approach: Step 7: Operations and Maintenance
With the Certificate of Occupancy and the Certificate of Final Acceptance the Public Agency begins its tenancy
The Not-for-Profit continues to staff the SPE
The Property Manager oversees Operations and Maintenance duties working for the SPE and in-service to the Public Agency
Public Agency
Public Facilities Group
Lease
Special Purpose Entity
Private Property Management

30. The New American Approach: Operations and Maintenance Renewal
Every 3 to 5 years the management agreement will be re-bid to guarantee a competitive operation and maintenance package for the building
Public Agency
Public Facilities Group
Lease
Special Purpose Entity
Private Property Management

31. The New American Approach: Unique Public Safeguards
The Public Agency can take control of the SPE at any time by replacing it as the member and then replacing the board of directors
Public Agency
Lease
Special Purpose Entity
Private Property Management

32. The New American Approach: Step 8: Transfer of Ownership
After the bonds have been retired ownership of the project transfers to the Public Agency at no cost.
Public Agency
Ownership
Facility

33. Questions and Discussion

34. Upcoming Webinars Register at our website publicfacilitiesgroup.org
P3 Negotiation Prep 1: Comparing Public Delivery and Private Delivery Processes October 12th, 2017; 9am-11am pacific P3 Negotiation Prep 2: Comparing Public Financing and Private Financing Options October 26th, 2017; 9am-11am pacific P3 Model Comparison November 9th, 2017; 9am-11am pacific New American Approach; Using Tax-Exempt Debt in a P3 November 30th, 2017; 9am-11am pacific