Homebuilders and developers may want to consider availing themselves of opportunities arising through public-private partnerships (P3s).
The Obama administration has recently proposed several creative approaches to P3s. Those approaches include synergistic transaction structuring through a property exchange program and an innovative method of raising capital through Qualified Public Infrastructure Bonds (QPIBs).
The U.S. General Services Administration (GSA) has set aggressive goals to help federal agencies dispose of underutilized real estate assets. This initiative was the impetus for the property exchange program. A governmental agency will initiate a transaction under the exchange program when it determines that one of its buildings—usually in a high-density, urban area—is being underutilized and such agency is desirous of developing a structure elsewhere. The governmental agency will issue a Request for Proposals seeking developers to build the new structure in exchange for the underutilized building.
An illustration of an exchange program transaction is the GSA’s pending disposition of the J. Edgar Hoover Building in Washington DC (the old FBI Headquarters) in exchange for the development of a new FBI Headquarters facility. Bill Dowd, Project Executive for GSA’s Public Building Service said:
The J. Edgar Hoover Building does not meet the FBI’s needs in the 21st century. GSA is planning to exchange this building for the construction of a new headquarters that would give the FBI a facility worthy of its mission.”
The exchange program allows governmental agencies to relocate their personnel to locations further from high-density urban areas to allow for more protective security buffers. The program also ensures that the consideration received from the disposition of such underutilized asset remains in the control of the disposing governmental agency. If such governmental agency engaged in a traditional sale, the proceeds derived from such sale may be redirected to another governmental agency that was deemed more deserving of the funds.
Last January, the Obama administration proposed the creation of QPIBs in an attempt to extend municipal bond benefits to P3s. The benefit of QPIBs is that they would not be restricted by the issuance caps, expiration dates and alternative minimum taxes that burden Private Activity Bonds. Ultimately, QPIBs allow for more affordable P3 financing.
The introduction of innovative transaction structures through the exchange program and the decreased cost of P3 financing via QPIBs make P3s a more attractive development play. Builders and developers that are amenable to the possibility of a governmental partnership may want to consider a P3 when analyzing potential business opportunities.
