Five Essential Traits of an Ideal P3 Partner:
Focuses on the long-term vision of the institution and public interests of the community
The goals and vision of a public-serving institution typically span longer horizons than those of the typical private real-estate developer and their capital sources. An ideal development partner would understand these longer horizons and align the capital and project with a standard of care for the community that matches that of the institution. A reliable development partner will spend adequate time understanding the needs of the institution and their community and be committed to creating long-term value for all stakeholders; instead of building a project that is focused on a short-term exit and quick extraction of value for a few, typically outside benefactors.
These projects have the potential to be catalytic to the surrounding community. Sometimes requiring the developer to creatively activate underutilized tracts of land where little to no private development activity is taking place nearby. A thoughtful partner will be willing to go first in a market knowing that these projects have the potential to become ignitors for revitalization and community elevation. They will be conscientious of the surrounding fabric and ensure that they create integrative destinations that can become platforms for future economic development and job growth that may have otherwise been unattainable. Without a deeper engagement between the public and private sectors and a reconciliation of their purposes and agendas, mutual success is not possible. A participating private partner will understand the level of commitment required to be intentional in their pursuit of building a project that is sensitive to the community’s needs and not just the interests of the developer.
Has specialized expertise in developing projects that represent both private and public interests
Many projects will use public incentives to make them financially viable. The development team within a P3 relationship will require special expertise to bridge private capital sources with available public incentives to make a project both financially viable for private investors and at the same time worthwhile for public investment. The development team should have an in-depth understanding of macroeconomics, capital markets and modeling techniques to meet private capital underwriting requirements and also possess the expertise to facilitate dialogue with municipal advisors, bond counsel, and other public stakeholders and policymakers. Just because a project has a financing gap does not mean it is worth executing with public incentives. Developers who are new to public-private partnerships often underestimate the importance of the specialized expertise required in achieving a successful transaction where the project represents the interest of both private and public parties.
An ideal development partner will appropriately build financial models that demonstrate a fair deal for all parties, public and private. The analytic and modeling skills of the developer is crucial to creating a win-win deal structure. In the case where public incentives are considered as potential gap funding, the public sector should not be giving more incentives than is required for the project to provide a commercially reasonable return to investors while meeting public goals such as job creation or tax benefits. It is difficult to know where the balance between public incentive and private capital lies. Therefore, deep and careful financial analysis should be undertaken by the private development partner with complete transparency. The fiscal and community benefits must be modeled to ensure a positive cost/benefit balance for the community. Many private developers are not prepared for the type of disclosure or transparency needed to calm the valid fears of institutional administrators or public officials.
Is vertically integrated, offering turn-key development management services from building design to operations
An ideal development partner will follow a collaborative development process that captures the best of private-sector innovation for design, construction, and operations to create a customized solution that meets the project’s shared vision. Few tasks require more attention and care than selecting the overall project team and establishing an overall project schedule and budget that meets all parties’ needs. An ideal partner would have the multi-disciplinary expertise needed to manage the programming, financing, design, infrastructure improvements, construction, and successful management of the proposed property. It is rare to find a development team who is proficient in all of the disciplines and has the skill-sets required to properly translate the project’s requirements and shared vision, negotiate clear project roles and manage expectations effectively all while upholding the values of an institution.
In addition to having the technical skills required to manage the complexity of each phase of the development, a good partner will have the empathy required to listen to the community’s needs, and then follow through on promises made to stakeholders. They must have adequate communication skills in a public forum, respond well to questions and comments, and not come across as all-knowing or they can do irreparable harm to the project’s momentum. The developer must be collaborative and not proprietary to be successful in public-private partnerships, ensuring that the project team maintains a culture where the success of the overall project is more important than the success of any singular idea or team member. There are many successful private sector developers who do not have the soft skills to be effective partners for public-facing institutions.
After construction is completed, an ideal partner will continue to steward the property with the same standard of care expected of other institutional assets. The developer will either operate as the property manager or procure those services from a trusted source. It is important for the developer to understand how the asset will be managed and make thoughtful decisions during the design process that set the project up for long-term success throughout its entire life cycle. Public-private partnerships are not a sandbox for “hit and run” developers to play. Many developers build projects to simply sell the asset, but do not put as much time or effort into understanding how the asset will be managed and stewarded over its lifetime. For building projects that represent institutions and intend to have long-term community value, it is critical to have a development partner who has an empathy for operating and stewarding projects beyond a quick sale.
Has a proven track record of overcoming challenges throughout the development process
Few development projects are finished without unanticipated challenge arising, so it is important to select a partner who has demonstrated the stability and commitment required to see projects through to completion and stabilization. Administrators should carefully review their potential partners’ portfolio and evaluate how each dealt with the inevitable circumstances that challenge a team’s ability to finish a project or to operate and maintain it afterward. A development team with a quality resume of projects will be able to provide specific examples of how they overcame challenges at each phase of the development process.
For example, one of the most difficult aspects of a public-private partnership is the balance of stringent-procurement policies that many institutions must adhere to with private underwriting regulations and guidelines that the private developer must navigate early in a project’s conception. A critical skill-set of an ideal partner will be bridging this early divide, where the private developer needs a commitment to spend the resources required to specify the project and the institution is being protective of their commitment to move forward with a project until those specifications are complete. It takes a great deal of creative problem solving and structuring just to get a project with public interest to a ground-breaking ceremony, where the challenges that arise are more conceptually understood.
Has unwavering integrity from beginning to end
All great partnerships are built on a core value of trust. To achieve trust, both parties must be confident that the other will follow through on their commitments and that each party is working in good faith for the success of the project. The first tests of trust in a partnership typically show up at the negotiating table early in the project’s structuring. Negotiation is either used as problem-solving or for bargaining. An ideal partner will use the negotiation table for problem-solving and will establish a pattern of integrity to be followed from the very beginning of a project. Administrators should expect the negotiation process to be used to resolve the differing perspectives, needs, and risks of the parties, not as a place to gain a competitive advantage.
Institutions are not motivated in the way private developers are. Institutions, much like the public sector, are focused on their community-focused missions and are motivated by transferring risk, avoiding failure, and stewarding their resources with great care for the sake of the community. In contrast, the private sector is often characterized as being focused on achieving the highest incomes at the lowest costs and with minimal ongoing compliance obligations. To overcome these differences in motivation, each party must thoroughly understand the transaction through the eyes of the other. It is important to choose a partner who is very straight forward in the way they conduct business and who has a missional vision for their projects beyond returns, which can be atypical of many private commercial real-estate developers. An ideal partner will quickly and candidly address any project concerns in a manner that creates hope, and not fear. They will simply follow through on their commitments, both large and small, ensuring that all stakeholder’s values and interests are heard and addressed from beginning to end.
President, Mercer University
Middle Georgia Regional President, Cadence Bank
Mayor of Macon
Executive Vice Chair, Multifamily Advisory Group, Cushman Wakefield
Executive Director, Macon-Bibb Urban Development Authority