Value-added P3 s: two case studies Long Beach Civic Center & Los Angeles Convention Center

Transcription

1 Value-added P3 s: two case studies Long Beach Civic Center & Los Angeles Convention Center CDFA Intro Public Private Partnership (P3) Public Finance Webinar Ignacio Barandiaran June 21, 2018

2 Disclosures Arup Advisory Inc. is an affiliate Arup and a registered municipal advisor with the SEC and MSRB. Arup Advisory is not acting as a municipal advisor or fiduciary to any person with respect to this webinar; and Arup is not acting as an advisor or consultant to any person with respect to this webinar. Any opinions, views or information herein is not intended to be and should not be construed as financial or commercial advice, or advice with in the meaning of any applicable law, including Section 15B of the Securities Exchange Act of June 21,

3 Disclosures Contents 1. Introduction to Arup 2. Long Beach Civic Center P3 3. Los Angeles Convention Center P3 June 21,

4 Arup Services Alternative procurement advisory: feasibility, business case development, project definition, and transaction structuring Development of The Story and project s Value Proposition Management, leadership, and coordination of the procurement process, including teams of in-house and other subject matter experts Financial, commercial, and technical consulting Internal and external stakeholder engagement Integration of internal and external team members into highly effective team June 21,

5 Long Beach Civic Center Source: SOM

6 City Rationale for P3 Existing Civic Center: o o o o Seismically unsafe, major life-safety risks High operating costs and deferred maintenance Inefficient use of downtown land Some City departments dispersed in other locations 2013 study: cost to retrofit > cost to replace Limited relocation options in commercial office Design Bid Build (DBB) represented unwanted risk and voters rejected bond issuance Fastest path to seismic safety required, significant concerns with phasing and continuity of operation June 21,

7 Project Site Downtown Long Beach, CA June 21,

8 City RFP Value Proposition to P3 Market Cost to General Fund < on-going annual operating cost of $12.6M (2013$) of existing facility Design, build, finance, operate, and maintain a new Civic Center and create a citywide amenity Bring the Port Headquarters downtown Revitalize Lincoln Park to a destination park Attract new residents and neighborhood-serving retail to downtown, aligned with the City s Downtown Plan Monetization of remaining site development potential Up to 40 year term Multiple options for P3 legal authorization June 21,

9 Public-Private Partnership Approach Keys to achieving City s affordability goals: o Unlocking value of under-utilized land generates over $30M in funding o Integrated procurement resolves multiple issues and ties private development to public investment o Economy of scale of City & Port shared facilities, consolidation of off-site departments and leases o Construction and O&M cost-efficiencies from PPP Upon construction completion City starts making inflationindexed annual Availability Payments per contractuallyfixed, 40-year schedule of payments Availability Payments are subject to non-performance deductions and cover all project costs Financing is non-recourse to the City: no pledge of the General Fund, no impact on its credit rating At the end of the contract the facilities revert to City at no cost and subject to min. condition requirements Equity Financing City: Taxable Private Placement Port: bank loan Real estate develop. partners Owner / Grantor Entities Project Agreement (City and Port) Project Company Design Build Contractor O&M Contractor June 21,

10 Public-Private Partnership Approach RFP and selection took less than one year Completed exclusive negotiations in Dec. 2015, finalized program, design specification, Project Agreement, and arranged private financing City obtained special legislation to authorize P3 procurement and mitigate remaining legal risks Process included extensive community outreach Financial Close reached in April 2016 RFP Selection & Approval Exclusive Negotiations Financial Close Construction Operations 4 months: March to June months: July to Dec months: started Jan. to Dec April 20, 2016 City Hall & Port HQ completion 2019 Lincoln Park completion 2021 Private development completion years after occupancy June 21,

11 The Opportunity Image: Plenary-Edgemoor Civic Partners Source: Plenary June 21,

12 Phase 1: Complete New Buildings 2016 to 2019 Financial Close Final design Port and City Hall construction Library construction City does not make any payments to the developer until the new buildings are complete Move in to new buildings Start Availability Payments Lincoln Park Construction Construction private development Existing City Hall and Library continue in operation, including parking for employees and visitors P3 developer constructs new buildings and re connects streets June 21,

13 Phase 2: Managed relocation of City and Port employees to new facilities Final design Financial close Port and City Hall construction Library construction Move in to new buildings Start annual payments to P3 developer Lincoln Park Construction Construction private development P3 developer demolishes City Hall and Library, then City releases parcel for Private Development on old City Hall site City & Port relocate to new buildings with P3 developer assistance, then P3 developer performs O&M for the next 40 years June 21,

14 Phase 3: Complete Lincoln Park and Private Development 2020 to Final design Financial close Port and City Hall construction Library construction Move in to new buildings Start annual payments to P3 developer Lincoln Park Construction Construction private development P3 developer constructs new 5 acre Lincoln Park and performs O&M for next 40 years P3 mixed use development: 580 housing units 40,000 sq.ft. retail 200 bed hotel June 21,

15 Testimonials 2016 This is a project that in my opinion, is transformational. We are excited to see it move forward and to meet the goals set by the City two years ago when it embarked on the Civic Center P3 procurement. Robert Garcia, Mayor of Long Beach Arup has been a real force behind our success with this project, helping us move it from a hunch to reality in such a short timeframe. They have shown great skill in helping the City and Port navigate a very complex transaction, managing the entire process from the RFP to the end of negotiations. We picked the right advisor. Michael Conway, Director of Economic and Property Development June 21,

16 Los Angeles Convention Center June 21, Source: SOM HOK

17 Goals for the LACC expansion project Maximize revenue and economic benefits Bring innovation to the venue and create a vibrant district Achieve cost and schedule certainty and long-term maintenance No impact on 6% debt-service limit and minimize cost to General Fund Industry trends and drivers Mixed-use events districts Expanded range of events Public-private partnerships June 21,

18 Houston Convention Center June 21,

19 Darling Harbour, Sydney, Australia June 21,

20 Melbourne Convention Center, Australia June 21,

21 Two approaches evaluated: Traditional and P3 Traditional approach: City develops designs, hires contractors, and finances the project. City then operates the LACC under similar arrangement as now. Project scope to include LACC expansion and a new hotel. P3 approach: City runs a procurement process to select an integrated development team to design, build, finance, operate and maintain the LACC for 30+ years. Project scope to include LACC expansion, new hotel, and mixed-use development. June 21,

22 Traditional option: business model June 21,

23 DBFOM option: business model June 21,

24 Evaluation of Options Goals Bring innovation to the venue and create a vibrant district Key Findings DBFOM and Traditional Options Both Options can deliver City s facility program Schemes considered under DBFOM option maximize: Revitalized, 24/7 convention district with diverse mixed uses Reconnected and activated streets with new amenities DBFOM competitive procurement drives range of innovative solutions Maximize revenue and economic benefits Similar economic benefits from expected growth of event business DBFOM option mixed use development: more than doubles expected earnings and jobs nearly doubles fiscal impact provides new revenue sources from real estate June 21,

25 Evaluation of Options Goals Achieve cost and schedule certainty and long term maintenance No impact on 6% debt service limit and minimize cost to General Fund Key Findings DBFOM and Traditional Options Ample industry capacity and experience to deliver either procurement CM/GC procurement keeps most delivery risks on the City DBFOM better mitigates cost/schedule risks Risks allocated according to party best able to manage them Most delivery risks transferred to development partner Scope includes construction and lifecycle DBFOM option: does not impact 6% limit Real estate ground leases and net tax receipts partially offset costs Net present value is 3% to 13% less than the Traditional Path June 21,

26 Testimonials 2015 and 2017 The City Administrative Officer has been directed to develop a financing plan for this nearly $500 million project. This unique timing allows the Convention Center to undertake a major renovation while still living within its existing means. One option not under consideration is raising taxes I will not support any new taxes to pay for this project. Eric Garcetti, Mayor of Los Angeles As our lead advisor, Arup has helped the City understand traditional and alternative business models, identify and quantify new revenue sources and financing mechanisms, and evaluate operating and life-cycle costs. They have provided good value to the City of Los Angeles and we trust that they are in a position to do the same for other cities to solve their infrastructure investment challenges. Ben Ceja, Assistant City Administrative Officer, City of Los Angeles June 21,

27 Key Take-Aways Learn from others Look at all your options Consider DBFOM for eligible projects, but not appropriate for all projects Know and understand the benefits and the risks, and what risks are worth transferring Identify a Revenue Source: P3 needs a stable revenue stream Consider P3 s that add value: consider those opportunities where private sector expertise can maximize the value of revenue streams Identify Full Life Cycle Costs: compare apples to apples Analyst-Up: Get professional help Meet and confer with employee associations and build stakeholder consensus June 21,

28 Ignacio Barandiaran Principal ARUP 1330 Broadway Oakland CA c: June 21,