From Concept to Reality
The municipal development process illustrates the promise and peril of public/provate initiatives.
The long-term goals of
public/private real estate partnerships can be noble -- better
downtowns, more livable communities, and a broadened tax base. In
addition, these ventures often provide civic-minded commercial real
estate professionals with opportunities to get in on the ground floor
of major redevelopment projects, move into positions beyond traditional
broker/developer roles, develop consensus-building and public-speaking
skills, and take a firsthand look at how state, local, and federal
governmental bodies work. Another plus is sometimes a higher public
profile either personally or for one's company.
in today's "no-new-taxes" environment, public/private opportunities are
out there. "It's a pretty good market," says John Buttarazzi, executive
vice president of public sector services at Cohn Real Estate in
Washington, D.C. "Governments right now have had their backs up against
the fiscal wall, but projects still need to be built. Raising taxes is
not too appetizing; incurring more debt is not that much less painful,
so you really have to look for a third way ? tapping the private
sector. And the good thing is, the private sector has the money."
many aspects of creating and developing public/private projects require
familiar commercial real estate skills, they also demand a whole set of
finely honed supplemental ones. And it's important to understand how
such partnerships work before taking them on, Buttarazzi says. The
following case studies highlight the various issues at work in these
high-maintenance but highly rewarding ventures.
Know Where the Resources Are
Success in public/private partnerships is sometimes knowing where to
look. "Brokers are leaving dollars on the table simply because they
don't understand the large number of incentives that are available to
their clients through the public sector 'whether local or state,'" says
Eric Davis, CCIM, president of the Greater Owensboro Development Corp.
in Owensboro, Ky.
manages and markets Mid-America Airpark, an industrial park owned by
the city, Daviess County, and the Owensboro-Daviess County Industrial
Foundation, a group of private citizens and investors.
in 1995, the 450-acre park is about half-sold, and its occupants
include a national distribution center, several first-tier auto parts
vendors, regional distributors, and a biotechnology company.
industrial parks are not uncommon in small markets, Davis says.
Developers are more eager to build in large markets, but smaller
communities --where the need may be greater -- often are overlooked. "I've been involved mostly in cities of less than 150,000, and as an
economic developer, you have to have product on the ground in order to
attract business," Davis says. "It's appropriate for public sector to
do them, because the private sector isn't doing them."
develop parks in a variety of ways, he says. Some towns offer land for
free or a reduced rate in exchange for a guarantee of new jobs and
businesses. Other communities build parks on spec or develop and manage
parks start to finish. ?If developers can learn to interface with the
public sector, they can often make their deals work in smaller
communities," he adds.
He adds that
brokers who work in several areas may not be aware of available
incentives because each state and city is different. "Incentives aren't
always published and aren't always offered the same way," he says. "If
I were a broker, I would start at the economic development office
before anywhere else. Get to know the economic development director."
developers shy away from the public sector, fearing unwarranted -- and
unwanted -- publicity, he says. "There's sometimes a lack of trust in
the confidentiality side. [Developers may be] worried that I'll take it
to the newspaper because I'm a public-sector guy, and we live and
breathe by an announcement [of new business]. But good economic
developers certainly understand confidentiality."
understanding the open process is part of the learning curve in these
partnerships, Buttarazzi notes. "In the public-sector decision-making
process, everything is done in the open," he says.
While a lot of public money goes into these joint ventures, the
projects still must be economically attractive to private investors.
Overstreet, CCIM, helped develop a mixed-income community of 58
townhomes in Chicago in the 1990s; 25 percent were bought by the
Chicago Housing Authority to rent to displaced public-housing
residents; the remaining 75 percent were sold at market rates.
was one of the first projects of its kind in the country. "We were out
to prove that market-rate buyers would buy in a development like this
where there's a 75/25 split," says Overstreet, "as long as there's good
controls and good management."
project also used conventional financing. "That was another point we
wanted to show," he says. "We didn't seek or get many grants;?"instead
it was financed primarily through several banks.
worked for Chicago Dwellings Association, a not-for-profit developer of
affordable housing, which partnered with the CHA to construct Orchard
Park Townhomes on three acres of CHA land, not far from Chicago's
notorious Cabrini-Green public housing high-rises, which are in the
process of being dismantled.
took five years to complete, but all the units sold. Initial asking
prices were $175,000 for two-bedroom units and $225,000 for
three-bedroom units. However, the project helped pave the way for a
wave of development in the area, and prices have shot up. "Some of the
initial buyers doubled their money in three or four years," says
Overstreet, who's now president of Lincoln Realty in Chicago. "The last
unit I sold in 2000 was a three-bedroom for $420,000."
exist for private entrepreneurs to become involved in projects like
Orchard Park, as developers or brokers, or by assembling land or having
developers, or even the housing authority as clients, Overstreet says.
He advises checking out opportunities with government housing agencies
or development offices or talking to developers who have worked on
Despite the financial
success though, Overstreet notes a familiar caution. "You have to have
the resources to deal with the long term. These are not the easy deals,
and you have to be willing to dig in -- it takes years to put the pieces
together. Communication is really important, because you're dealing
with all different kinds of levels of people in all different agencies.
And there's a community process as well as a governmental process, and
that's another layer of deals."
Patience Is a Virtue
Along with extra layers of process, public/private deals also are
affected by public sentiment. Deals that aren't even on the radar can
come up against formidable barriers that are far beyond any real estate
2000, Wayne D'Amico, CCIM, president of Real Property Consultants in
Essex, Conn., got involved in the revitalization of Meriden, Conn.,
once a center for silverware manufacturing. The town "has tremendous
assets," D'Amico says. "Its land and location are great in most real
estate models. So, the question is how to capitalize on that."
project coordinator for the Meriden Economic Resources Group, D'Amico
studied one of the downtown's biggest liabilities: a nearly deserted
220,000-square-foot enclosed mall, which had already been redeveloped
in the 1980s into a "combination strip center/industrial facility," he
"We analyzed the viability of the
site, ... If it's not just the brick and mortar problem, what is [the
problem]? We came up with the external issues: General trends in the
marketplace, flood-control issues, traffic and circulation issues,
general issues with workforce development " all the kinds of
cookie-cutter issues that are standard in economic development."
the market analysis clearly identified the project's path. Given the
scope of the improvements, MERG had to tap both state and federal
governments for money, and to do that, "it became clear that we needed
a documented vision."
In early 2001,
D'Amico began working on a plan and, after two months of trying,
scheduled a Sept. 19 meeting with the state economic development
department to get planning funds.
of the Sept. 11 attacks, the meeting never occurred. The state
rescheduled, but the group "knew then it wasn't going to be a priority,
when people are worried about security," D'Amico says. "And then, the
day before the meeting, the state announced that after a decade of
growth, it was going to be in a deficit budget situation for the first
time ever. The world had changed."
December the group had found other resources: another economic
development group, SBC, the chamber of commerce, and a local cable
company. The city had no money to give, but lent personnel. MERG
commissioned a master plan study, which was released in July 2002. It
featured a number of proposed redevelopment areas including a new city
green, a redeveloped commercial center and arts district, and
reconfigured highway and traffic patterns. It also called for $90
million in private spending and $40 million in public funds.
September 2002, MERG received $250,000 from the state for further
planning. D'Amico spent the next year negotiating the grant and the
first seven months of this year conducting vendor selection for the
study. The project's next phase is to refine some of the concepts and
present a realistic assessment of public improvement costs and private
As D'Amico's experience
illustrates, public/private ventures move at glacial speed when
compared with privately funded projects. But for good reason, he adds. "Whenever there's public resources, you've got to go through the
scrutiny of who benefits. So you have to have documentation from
legitimate, credible sources, so you can stand up in the public domain
and feel confident."
private developments, public/private ventures have much greater
planning expenses. "There's a lot of money that goes into
public/private projects; you often end up doing two market analyses or
two market appraisals. The resources needed to incubate these are
tremendous," D'Amico says.
there are many more opinions to consider. "It's all about building
consensus from a whole bunch of constituencies to move forward. That
model works in private business, but here you've got a lot more people
to deal with."
Working With All the Players
Public/private partnerships inevitably involve a wide range of
interested parties, from businesses to the community to investors, says
Conie Mac Darnell, CCIM. As president of Center City Investments in
Macon, Ga., Darnell now provides commercial service to investors and
businesses in downtown Macon. In 1999 he was president and chief
executive officer of NewTown Macon, a nonprofit public/private
community development corporation that organized to revitalize downtown
Macon. "You've got a heavy dose of dealing with all kinds of different
people with all kinds of different motivations."
initiatives NewTown developed included the Urban Design Center, which
serves as a coordinator for redevelopment projects; a 10-acre mixed-use
riverfront development project along Ocmulgee River; the 10-mile
Ocmulgee Heritage Trail, redevelopment of the downtown's rail station;
and a downtown plaza, designed for public activities.
1999, two foundations pledged $6 million, Darnell says, and by fall
2002 NewTown had raised another $30 million from property, city revenue
bonds, county and federal grants, as well as private funds from banks
The group also
developed strategic partnerships with other public/private entities
such as the urban development authority, the chamber of commerce,
banks, the Macon Historic Foundation, and Mercer University, which is
downtown. Volunteer work came from attorneys, general contractors, and
So far, the most successful
element has been the "one everyone has agreed on: Heritage Trail,"
Darnell says. "It has become the icon of downtown rebirth." Three miles
of the trail are completed, the result of "public and private
cooperation; it just flat out would not have happened without it. The
county stepped up to the plate with revenue bonds to help support that,
and private funds helped build sections of the trail."
other parts of the redevelopment project are more complicated. "Public/private partnerships are a forum for bringing people together,
but that doesn't mean that they always agree," Darnell says. "There are
different agendas. There have been lots of things that we all couldn't
agree on, so we'd set them aside and find something that we could agree
on, to keep the momentum going."
of such agendas, as well as a keen understanding of the necessary
politics, is key to keeping public/private deals moving along,
Buttarazzi says. "The real estate professional wanting to do business
with the public sector needs to understand the public sector's policy
objectives as well as the private sector's economic imperatives."
Keep Sight of the Big Picture
Keeping the momentum going often is difficult given the size and
complexity of some public/private projects. One of the keys, says Cathy
Crenshaw, CCIM, president of Sloss Real Estate Service in Birmingham,
Ala., is developing a clear set of guidelines and goals early in the
1998, Crenshaw's company, in partnership with Atlanta-based Integral
Properties, has headed Park Place, the redevelopment of a 12-block area
in the middle of Birmingham's downtown. The plans call for replacing
blighted public housing projects with an ambitious interlinked
community that will include housing, a new YMCA youth development
center, a renovated park, a redeveloped elementary and middle school, a
community garden, and a culinary incubator that will provide training
and business assistance for the restaurant and food industry. "When we
did our planning, we had to think bigger picture than just the housing
if we're going to build a successful neighborhood," Crenshaw says.
637 housing units will include a mix of styles and sizes " apartments
and townhouses" with 581 homes and apartments for rent and 56 for
sale. About 40 percent will be subsidized housing through the
Birmingham housing authority; about 20 percent will be low-income tax
credit housing and about 40 percent will be rented or sold at market
Originally funded by a $35 million
Housing and Urban Development grant, the project involves between $100
million and $120 million in funding, as well as partnerships with
numerous public and private entities. The main reason for its
complexity, Crenshaw says, is the careful planning that needs to go
into reconstructing a community. "You need to think holistically," she
says, "respecting the sense of place that's there and how it works with
its neighbors. Because this is such a strategic property to our city,
we really had to be sensitive to that."
notes that the Park Place project serves as a cornerstone for future
public/private projects. "Our urban core is starting to rebuild," she
says, "and what we do not want to see happen is just that these great
old historic neighborhoods gentrify. What we're trying to do is not
force folks who don't have enough money out of the city where there's
no transportation to jobs. So, we're looking at this as a model to look
at some formulas that we might apply to the contiguous neighborhoods,
so that we can protect some affordability in terms of housing and
In order to preserve such
intangibles as affordability, green space, and a sense of neighborhood,
the project's leaders put those issues on the table early on. "At our
[committee's] first meeting," Crenshaw says, "we put together a series
of guiding principles that we wanted to use to move this forward. We
talked a lot on design, but other principles emerged pretty quickly.
They were things like: we wanted it to look urban, and not suburban in
design. We wanted to avoid a "sea of sameness' in the apartment design.
We wanted people to be able to walk to work. Connectivity was important" we designed the neighborhood to fit right into the adjacent
neighborhoods. Greener is better; we wanted to save old-growth trees,
put in green space and incorporate green development. We said, "Let's
think about what we all believe in and try to hold these principles in
front of us as we move down the road.' And that has helped us a lot."
They can be frustrating, intricate, and lengthy. But real estate
professionals involved in public/private partnerships say they can also
a sense of personal satisfaction," Overstreet says. "You can do good as
well as do well -- you can do well financially and still effect a good
social purpose. That's the key."
estate professional "working in these has to wear a lot of different
hats," Darnell says. "And it is complicated and it can be frustrating.
But if you're working with the right folks, and you keep your eye on
the horizon, and you have a passion about it, it works. You've got to
be motivated by lots of different things."
of all, I like seeing the projects go up," Buttarazzi says. "Secondly,
you kind of feel like you're saving the taxpayers some money. And being
one, I like that."