A Study in P3 - NAIOP

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A Study in P3: Public-Private Partnerships in Trying Times

Jon LariaPartner

Ballard Spahr LLP

John GattusoSenior VP and

Regional DirectorLiberty Property Trust

Christopher PatuskyMDOT State Center

Project DirectorMaryland Department of

Transportation

Edward G. RendellPartner

Ballard Spahr LLP

Caroline MooreChief Executive Officer

Ekistics LLC

2© NAIOP. Do not distribute or reproduce without permission.

IntroductionJon Laria, Ballard Spahr LLP - Moderator


Liberty Property Trust and P3’sJohn Gattuso, Senior Vice President and Regional Director

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John Gattuso Bio

• Senior Vice President and Regional Director for Liberty Property Trust

• Oversees Liberty’s Urban/Metro Region which includes the city of Philadelphia, Washington, DC and Northern Virginia.

• Also responsible for Liberty’s urban and national development projects

• Has overseen the development of over 15 major public-private development projects encompassing over 4.1 million square feet and representing approximately $1.2 billion of private investment

• Development projects for which Mr. Gattuso has been responsible include:

– Comcast Center, a 975’ high, 1.25 million square foot, LEED Gold Certified office tower in downtown Philadelphia

– The Plaza at PPL Center, Allentown, Pennsylvania

– The Raintree Office Campus, Scottsdale Arizona, a three-building master planned office campus for a major US financial institution

– TJX Distribution Center, a 1 million sf distribution center in the heart of Philadelphia, recognized as a Smart Growth development by the Sierra Club

– GlaxoSmithKline’s new center for North American Pharma under construction at the Philadelphia Navy Yard



Case Study: Comcast CenterPhiladelphia, Pennsylvania

The Challenge:

• Develop a landmark, state-of-the-art, CBD office building, capable of serving as the new headquarters for one of the nation’s leading technology/communication companies

• Integrate new office development with existing adjacent commuter rail station

• Incorporate sustainable, high-performance technologies into a high-rise office tower

• Proposed development costs at time of project conception exceed by 90% previous high-water-mark for CBD office valuation on per RSF basis

• Existing rental rates in CBD office market at time of project conception are 30% below those needed to support new development


Comcast Center Continued:

The Solution:

• $30 million Commonwealth of Pennsylvania Redevelopment Capital Assistance Program grant

• Applied to cost of public spaces and underground pedestrian concourse to commuter rail station

• Enabled project funding gap to be closed and to be accomplished without significantly reducing project quality and scope



The Results:

• Leveraged over $700 million in direct private investment in the project ($490 million by Liberty Property Trust with balance invested by tenants in the building). Over 23 to 1 leverage ratio

• Secured a growing Fortune 100 headquarters in downtown Philadelphia, with significant job retention and creation

• As-of-right development



• Leveraged the tallest LEED gold certified building in the world (as of the date of completion)

• The completed Comcast Center development replaced a surface parking lot which had existed for over 20 years, and re-established important pedestrian connections within the office district

• Permitted the inclusion of significant public spaces as part of the development program including a ½ public plaza and dramatic indoor winter garden which serves as the new western entrance to the city’s main commuter rail station



The Price of Public Participation

• Required legislative approval at the state and local government levels

• Exposed project to heightened public scrutiny and comment

• Precipitated voluntary program to promote minority, female and disabled business enterprise participation in the design and construction phases of the project, as well as minority and female employment in the building trades

• Required segregation of public/infrastructure elements of the project, separate contracting as well as public sector contract management


The Navy Yard Corporate Center/Navy Yard Commerce CenterPhiladelphia, Pennsylvania

The Challenge:

•Redevelop a significant portion of the former 1100 acre Philadelphia Navy Yard

•Stabilize employment base by securing and promoting new private sector job creation to replace the loss of between 8 to 10,000 Navy-related jobs

•Construct new significant urban infrastructure including streets, parks, power grid, electric, gas, water and sewer services

•Establish Navy Yard as a viable, credible, new office and technology submarket

•Facilitate private investment in the Navy Yard in particular and Philadelphia in general.



• Develop a comprehensive master plan focusing on mixed-use sustainability and design excellence

Strategies:



• Designate key portions of the Corporate Center and Commerce Center as Keystone Opportunity Improvement Zones (KOIZ) providing the abatement of certain state and local taxes for qualified firms

• Provide for low-cost financing to qualified business and for certain required infrastructure

• Provide over $43 million in federal, state, and local government grants for construction of related infrastructure



• Select private developer through credible, competitive process

• Structure a public-private partnership to leverage market credibility, investment resources and development capacity for large scale development

• Establish standard for high-quality, sustainable development which will expand job base and promote long-term value creation



Benefit of Public/Private Partnership:

• Public shared in cost of master Plan preparation

• Land held by public (Philadelphia Authority for Industrial Development or PAID) until needed for development

• Managed and measured supply of new product

• Established standards for design quality and sustainability



The Outcome:

•Comprehensive Master Plan for 500 acre mixed-use development

•High quality design and sustainability standards

•Marketplace credibility

•10 buildings completed or under construction

•$244 million in private investment to date, including public infrastructure funded by Liberty

•An additional 600,000 rsf of commercial space, representing $200 to $250 million of investment by Liberty anticipated in the Corporate Center and Commerce Center alone



Price of Public/Private Partnership:

• Minimum development performance schedule must be maintained or rights are forfeited

• Land pricing is based upon a FAR basis and escalates over time

• Public participation in minimum annual building rents

• Precipitated voluntary program to promote minority, female and disabled business enterprise participation in the design and construction phases of the project, as well as minority and female employment in the building trades


Maryland’s Transit Oriented Development Program and the State Center Project

Christopher Patusky, Maryland Department of Transportation


MDOT Office of Real Estate

• Secretary of Transportation’s Office

• Responsible for TOD Projects at MDOT Stations:– Baltimore Metro; Baltimore Light Rail; MARC

• Support WMATA TOD Efforts at Washington Metro Stations:– Staff assigned at MDOT– Financial support for WMATA projects


Maryland TOD Legal Framework

The O’Malley Administration’s TOD agenda

• 2008 TOD Law: TOD is a “Transportation Purpose”

• 2009 TOD Law: Local Government TIF and Special Taxing District authority expanded for TOD projects

• 2009 TOD Executive Order: Gives priority for the location of State offices and other facilities at TODs.

• 2010 Sustainable Communities Act: TOD Projects automatically eligible for historic tax credits


Private Development Typical Challenges

• Site assembly• Infrastructure costs• Commercial market • Deal economics• Local zoning and encumbrances• Community opposition


Public Private Partnership: Additional Challenges

Government Approvals:• Executive Branch decision process• Attorney General’s Office review and signoff• State legislative and budget approvals• Maryland Board of Public Works Approvals

Augmented Political Interest and Influence:• Union, community, housing, environmental, local and minority hiring/contracting, historic and other groups• Competitive private interests

Additional Costs: • Legal, lobbying, and publicist fees• Public amenities and concessions• Increased infrastructure costs (e.g. commuter garage)


Government Role

• Government Toolkit– Government-owned property– Purchase or condemn additional property– Amend zoning– Subsidize predevelopment– Funding tools (grants, bonds, land value, TIF, Special Assessment

Districts, profit sharing)– Robust outreach process to community and groups– Leadership and political influence


Long List of Maryland TOD Projects

• Symphony Center Light Rail• Owings Mills Metro• Savage MARC• State Center Metro/Light Rail• Reisterstown Plaza Metro• Laurel MARC• Odenton MARC• Penn Station MARC/Amtrak• Howard Street Light Rail• West Baltimore MARC• Johns Hopkins/EBDI Metro• Rogers Avenue Metro• Cromwell Light Rail• Muirkirk MARC• Baltimore Redline stations

• Silver Spring Metro• New Carrollton Metro• Branch Avenue Metro• Bethesda Metro• White Flint Metro• Wheaton Metro• Twinbrook Metro• Rockville Town Center/ Metro• Naylor Road Metro• West Hyattsville Metro• College Park Metro• Largo Metro• Prince George’s Plaza Metro• Morgan Boulevard Metro• Glenmont Metro


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Transit-based Development Strategy for Baltimore

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State Center

• 28 acre State-owned parcel in Mid-town Baltimore• One million square feet of obsolete State office space• Light Rail, Metro, Amtrak, MARC• GOAL: Replace State office space while creating a mixed-use TOD


Caroline Gilbert Moore

• President of Ekistics LLC, a real estate development and investment company

• Managing Member and Lead Developer for State Center Transit Oriented Development in Baltimore, Maryland

• Managed the development of over 2 million square feet of urban mixed use projects

• Areas of Expertise– Public Private Partnerships - Mixed Use– Adaptive re-use - Sustainability– Stakeholder Engagement - Brownfields


The Power, Passion & Persistence

of P3’s


State Center, Baltimore Maryland


State Center – 28 Acres | 9 Neighborhoods


State Center

State Center – Isolating Communities


Today

2011


15 Years From Now

2026


Phase 1


5 Phases Over 15 Years – 7 Million SF Potential


State Center

Blighting Influence


State Center

Community Anchor


State Center, Baltimore Maryland


Private Development

• Anchor Tenant

• Low Carry Costs

• Fill a Missing Need

• ROI

Public Sector

• Private Financing

• Taxes & Jobs

• Advance Policy Goals

• ROI

State Center – Public Private Benefits


The P3 Challenge

• Clear Authority

• Predictable Process

• Accountability to a Schedule

• Pre-Development Investment


Stakeholder Engagement

Formal PresentationsCommunity 145City Govt. 50Legislature 30BPW 25State House 40

290


State ApprovalsRFQ: Request For Qualifications MOU: Memorandum of UnderstandingIDA: Interim Development Agreement LOI: Letter of IntentMDA: Master Development Agreement Ground LeasesState Space Leases

DateMarch 2006June 2007 Dec 2007 Aug 2008June 2009 July 2010 Dec 2010

Approvals Timeline


www.statecenter.org


The Role of Government in P3 ProjectsEdward G. Rendell, Ballard Spahr LLP

Former Pennsylvania Governor


Discussion and Questions?

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A Study in P3 - NAIOP