Burbank
Civic Center
Introduction to
Public-Private Partnerships
Burbank City Council
August 9, 2022
Presentation Outline
1. Burbank's Journey to a P3
2. Introduction to P3s
3. Benefits of P3s
4. Case Studies
Burbank's Journey to a P3
3 Burbank Civic Center
• 30+ year effort to redevelop
Central Library
• 2002 plan for Library, open
space, staff offices
• 2021 study: Vision for a New
Central Library with Council’s
direction to explore financing
models
• P3 model increasingly used
by municipalities for $100M+
infrastructure projects
Source: burbanklibrary.org
5 Orion Fulton
Associate Principal
Advisory Services
d. (415) 946-0599
[email protected]
Consultant Team
Introduction to P3s
6 Why Are We
Talking about P3s?
• Asset deterioration and
deferred maintenance
• Using capital / debt
capacity to fund early
replacement of assets
• Public sector has hard
time delivering major
projects on-time and on-
budget
• Asset lifecycle timeline is
long, easy to ignore
Source: calmatters.org
Key Benefits of a P3
• Transfer of risk
• Optimization of costs across lifecycle
• Performance-based contracting
• Private financing
• Public investment triggering private development
HEADING
Types of P3s
Source: acppubc.com
Source: stock.adobe.com
Source: ny.curbed.com
Source: development-industries.com
Project Delivery Options
Private Control
Private Equity
Taxable & Tax-Exempt Financing
Public Procurements PrivatizationPublic-Private Partnerships Design
Bid
Build
DBB
Construction
Manager/
General
Contractor
CM/GC
Design
Build
DB
Design
Build
Operate
Maintain
DBOM
Design
Build
Finance
DBF
Design
Build
Own
Operate
BOO
10 Design
Build
Finance
Operate
Maintain
DBFOM
Traditional vs. P3
DBB P3
Design @ bid stage 100% ~ 30%
Construction price &
schedule
Lowest bid & target
schedule Fixed price & schedule
Financing Municipal bonds Non-recourse private
equity + debt
Maintenance Public Private
Operations Public Public or private
P3 Contractual Relationships
13 P3s Take the Long-Term View
Benefits of P3s
14 Transferring Risk
• Commonly accept too much risk
• Procurement strategy not rigorously developed or
implemented
• Project objectives changing during project delivery
• Many change orders part of the status quo
• Asset lifecycle cost often not considered
Cities struggle with major project delivery and asset preservation Project Delivery Risk
California highway project cost overrun performance
Larger projects are more likely to have cost overruns
Asset Preservation Risk
40%
35%
15%
10%
40 Year Facility Cost of Operations
Design & Construction Maintenance Energy Lifecycle
Facility O&M costs are greater over the asset lifecycle than design and construction Long Beach Civic Center
Asset Preservation Risk
P3s preserve asset value with preventative O&M regime
and lifecycle replacement reserve
Long Beach Civic Center
Conceptual example of funded lifecycle program vs
traditional approach
Performance-Based Contracting
• Lenders oversee Developer during construction, Owner steps in only in worst case
• Strong DB contractor guarantees
• During operations Developer must meet key performance indicators (KPIs)
• Owner payments to Developer are subject to deductions if KPIs not met • Owner can elect to retain some operations or maintenance responsibilities
Developer has primary responsibility for solving issues over a long-term contract
Performance-Based Contracting
Maintenance reserve
fund
Debt repayment
Equity
repayment
Facility O&M costs
P3 Payments
City funds • The payment
waterfall prioritizes
the facility, then
debt, then equity
• Keeps Developer
motivated to avoid
performance
deductions
The payment waterfall incentivizes Developer to perform Financial Considerations
• Developer secures debt financing
• Long-term payment obligation instead of debt
• Known maximum amount of each payment
• Public financing
Meeting Multiple Goals
• "Hybrid" P3 involves both public infrastructure
and housing
• Supports housing goals and needs
• Creates revenue stream to offset public
infrastructure costs
• Enables better placemaking, greater economic
impact
DBFOM Case Study
23 Types of P3 – DBFOM
• Project Company is an LLC created and sponsored
by Developer
• The asset belongs to the City and no property
rights to the underlying asset are transferred
• Equity interest manages the project
• Lender's security interest is the P3 contract with
the underlying credit of the Owner
• The City makes performance-based
payments, only if and when the facility is
occupiable and available for use.
Long Beach Civic Center P3
Delivery Structure: DBFOM & DBF
Project Developer: Plenary Properties Long Beach
Location: Long Beach, CA
Program:
- City Hall – 270,000 GSF
- Port Authority Headquarters – 230,000 GSF
- Main Library – 93,000 GSF
- Lincoln Park – 217,800 GSF
- Civic Plaza – 106,500 GSF
Total Cost: $520 Million
Financing:
- Cash from land monetization
- 91% Private placement bonds (with delay draw feature) - 9% developer equity
Long Beach Civic Center P3
Private Development:
- Housing: 580 units (middle-income)
- Parking: 850 stalls
- Retail: 35,000 GSF
Financing:
- 90% tax-exempt bonds
- 10% subordinate tax-exempt bonds
DBF+OM Case Study
27 Types of P3 – DBF+OM
• 63-20 bonds may be used when DBFOM is
desired but tax-exempt financing is advantageous
• Bonds issued by a nonprofit corporation for a
public use facility
• Title is held by the nonprofit and the bonds are
secured with a first mortgage
• Must use two separate contracts for DB and O&M
• Owner rent payment only covers debt and must
be paid
• O&M contract can be up to 30 years
Los Angeles County
Department of Mental Health
Delivery Structure: 63-20 Progressive Design-Build P3
Project Developer: Trammell Crow, Public Facilities Group Location: 6th Street & Vermont Avenue (Vermont Corridor), Los Angeles, CA
Program:
- 400,000 GSF office building
- 13 stories of offices for LA County
- 8-story parking structure plus one level of below grade parking
- 7,500 GSF of ground-floor retail
Total Cost: $350 Million
Financing:
- 100% 63-20 tax exempt bonds
- The County saves $980,000
Conclusion
30 Key Benefits of a P3
• Transfer of risk
• Optimization of costs across lifecycle
• Performance-based contracting
• Private financing
• Public investment triggering private development
Thank you!
Questions?