From Vision to Reality

By Dave Retzsch

Dave Retzsch, ASLA, UDP, is unit manager in the Dallas office of Carter & Burgess.

Across the country, communities want to revitalize their downtowns and create mixed-use town centers with public gathering spaces. Some communities have created master plans to illustrate their visions, yet only a few have turned the vision into reality.

What will be the difference between cities, counties and suburbs that dream about change and those that actually achieve it? For many, it will be the formation of public-private partnerships in which the government and private sectors unite their expertise and resources to share the costs, risks and advantages of developing projects.

By working together, government agencies and private developers can accomplish more. Public entities can strategically leverage their dollars to draw the private sector to invest in the types of developments that they are known for doing best.

According to research estimates, the construction value of PPPs will soar to $400 billion in 2010 as governments, private developers, equity investors and capital markets realize the potential for these partnerships.

With strategic advance planning, innovative financing and the formulation of compatible partnerships, public and private partners can turn their visions for dynamic downtowns and town centers into successful realities.

Creating and Promoting the Vision One of the most alluring aspects of any investment is predictability. Going into a PPP project, private developers want some assurance that strong consensus exists for the project. A master plan that has sought the input of key politicians and community leaders provides some of this certainty. With a plan in place, communities can then put in place the proper zoning, design criteria and entitlements necessary to achieve their goals. Early on, we encourage clients to adopt design guidelines to ensure that the final design is consistent with the master plan.

Just as a developer would go out and promote its plan to investors and the public, communities have to do the same thing with their master plans that show land use, building arrangements and concepts. Perspective illustrations or computer animations that turn planning legalese into development visions can be very useful for key decision-makers and citizens. To encourage public support, it may be useful for the public or private partners to create a website for the project where people can regularly check in on its status.

The Attraction of Advance Planning To navigate the PPP pre-development stage, some advanced plans include a multi-step process. Public entities that create a vision can then solicit private partners without establishing additional framework. Before courting developers, governments are strongly encouraged to commission a market demand study to illustrate the commercial or residential uses the community would support.

Another aspect of advance planning, a condition assessment, analyzes existing buildings and land in order to identify potential opportunities or issues with the real estate and remedies to address them. In addition, capital improvement plans create a methodology for assuring funding of major improvements. Without these two components, it can be difficult for communities to estimate their costs or to confirm a funding stream for the projects.

Governments are wise to provide developers confidence that they can come to the negotiating table knowing what they are being asked to contribute. We encourage communities to resolve zoning and entitlement issues early in planning so that private developers can focus on the project, not the politics.

Usually these types of projects don’t fit into a standard city code such as those that would be applied to conventional subdivisions, office parks or big box retail. So we often have to create planned unit developments that will incorporate new trends such as mixed uses, narrower streets and on-street parking, reduced setbacks, certain design and building height requirements.

Financing PPPs without Tax Increases After establishing a master plan and quantifying market demand, public and private partners need to formulate how their visions will be financed. But here a dilemma may arise. Citizens embrace the ideas of new jobs and the sense of community that well-planned downtowns and town center projects bring, but they may not support tax increases to pay for the government’s components of the project, such as streets, parks, drainage and parking garages.

Some have identified more than 30 PPP finance instruments that could pay for public improvements with non-tax income or tax revenues generated by the development.

If the city government owns the development site, the deal can be structured so that the developer has to pay a land lease to develop that government property, or in other cases, make payments toward the debt service for a public facility in lieu of paying property taxes. And tax revenue such as property, sales and hotel occupancy taxes can be leveraged to support revenue bonds to pay for public improvements.

Another creative arrangement, a tax-increment-financing-backed revenue bond applies the tax increment, or the difference between the pre-development property taxes and the post-development property taxes, to pay for the debt service of a revenue bond used to finance public improvements.

From the city to the federal level, there are many grant and tax incentive programs. An underutilized program, Stainback pointed out, is the New Markets Tax Credit of the U.S. Treasury Department which gives tax credits to a Community Development Entity investing in low-income communities.

Finding the Right Partner If private and public partners of downtown and town center projects have progressed far enough in the PPP process to accomplish advance planning and structure their financing, they may be prepared to enter into an official partnership.

The current preferred method of soliciting a private developer is the two-step Request for Qualification /Request for Proposal process.

If the government just issues an RFP, then no one has been pre-qualified, and it’s a wide-open race. So, many developers are reluctant to respond to an RFP because it costs so much money to put together a good proposal. Adding the RFQ, at least, creates a shortlist of developers who will be invited to put together an RFP proposal.

For private developers, making the right match is frequently more than a matter of money. They are in the deal for a profit that is commensurate with the risk they take, but they are also in it for a civic bottom line, for instance, through turning around an underutilized area. The third aspect that inspires them is the social interaction bottom line, in which they invite area residents to contribute their ideas about housing, job opportunities and other issues to the project’s vision.