De-Mystifying Public-Private Partnerships Sarah Samuels Jason Taylor The Scion Group LLC Shannon...
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De-Mystifying Public-Private Partnerships De-Mystifying Public-Private Partnerships Sarah Samuels Jason Taylor The Scion Group LLC Shannon Staten University of Louisville
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Transcript of De-Mystifying Public-Private Partnerships Sarah Samuels Jason Taylor The Scion Group LLC Shannon...
De-Mystifying Public-Private Partnerships
De-MystifyingPublic-Private Partnerships
Sarah SamuelsJason Taylor
The Scion Group LLC
Shannon StatenUniversity of Louisville
De-Mystifying Public-Private Partnerships
Session Overview
• What is a public-private partnership?
• Motivating factors
• Financing models
De-Mystifying Public-Private Partnerships
Basic Concepts
• Types of public-private partnerships
• Non-recourse financing
• Credit-friendly / Off-balance sheet
• Impact on operations
De-Mystifying Public-Private Partnerships
What is a Public-Private Partnership?
Generally, a public-private partnership (PPP) is any one or combination of
management, ownership or financing provided by someone other
than the school.
De-Mystifying Public-Private Partnerships
• Who manages the…– facility?– financial operations?– residence life program?
• Who owns the ground / building?• Who finances the project?
What is a Public-Private Partnership?
} Our focus
De-Mystifying Public-Private Partnerships
True or False?1. PPPs typically provide significant
benefits / advantages.
2. PPPs rarely provide significant benefits or advantages.
Motivating Factors
The benefits and advantages of PPPs depend on institutional
values, capabilities and circumstances.
False
False
De-Mystifying Public-Private Partnerships
• Address an urgent need• Expedite development• Gain experience and expertise• Reduce risk• Limit credit impact• Obtain favorable balance sheet treatment
Motivating Factors
De-Mystifying Public-Private Partnerships
By themselves, minimizing credit impact and obtaining favorable balance sheet treatment are rarely the sole factors which should compel a public-private partnership.
Motivating Factors
De-Mystifying Public-Private Partnerships
Financing Models
100% InstitutionalFull control, risk and resources of
institution
100% “Privatized”Minimal
institutional control, risk or resources
Planning / site selection Financing Construction management Property management
Residence life Management Marketing / assignments Learning communities
Factors
De-Mystifying Public-Private Partnerships
Advantages• College receives all net revenue• Complete control over construction quality,
design, operations and residence life• Complete control over pricing decisions• More favorable interest rates and lower debt
coverage ratio (“DCR”)
Financing Models100% Institutional
De-Mystifying Public-Private Partnerships
Disadvantages• School and/or State bureaucracy may be involved• Capital will be required (no risk transfer)• College/State bond capacity will be impacted• Potentially inefficient development and
construction process• Limited involvement of outside, objective
expertise/specialist• Incur entire lease-up risk (no risk transfer)
Financing Models100% Institutional
De-Mystifying Public-Private Partnerships
Advantages• Avoid some bureaucracy• Little or no capital outlay by school (risk transfer)• Limited impact on school/state bond capacity• Little or no construction delivery risk (risk
transfer)• Involvement of outside expertise/specialist• Objective test of market demand
Financing Models100% Privatized
De-Mystifying Public-Private Partnerships
Disadvantages• Little if any revenue participation• Exposure to property taxes• Union considerations / Prevailing wage laws• Little if any control over quality of construction,
design issues, operations and residence life• Little if any control over pricing decisions• Higher interest rates and DCR
Financing Models100% Privatized
De-Mystifying Public-Private Partnerships
Financing Models
100% InstitutionalFull control, risk and resources of
institution
100% “Privatized”Minimal
institutional control, risk or resources
Planning / site selection Financing Construction management Property management
Residence life Management Marketing / assignments Learning communities
Factors
De-Mystifying Public-Private Partnerships
Advantages• Avoid some bureaucracy• Little or no capital outlay by school (risk transfer)• Lessen impact on school/state bond capacity• Little or no construction delivery risk (risk
transfer)• Involvement of outside expertise/specialist• Objective test of market demand• Possible ownership over some period of time• Ability to select supports provided to the project• Possible revenue participation• Some control over design, construction and
pricing decisions
Financing ModelsPublic Private Partnership
De-Mystifying Public-Private Partnerships
Disadvantages• Higher interest rates and DCR• View of participation and conditions by auditors
and rating agencies
Financing Models Public Private Partnership
De-Mystifying Public-Private Partnerships
“Affiliated privatized student housing projects always impact the credit profile of an affiliated university to some degree.”
Source:Moody’s Investors Service, Privatized Student Housing and Debt Capacity of US Universities, March 2010
Financing Models Public Private Partnership
De-Mystifying Public-Private Partnerships
Characteristics that impact the credit analysis:• Location
• Ground lease• Share of student residences• Student market segment• Student services• Rental rates
Source: Moody’s Investors Service
Financing Models Public Private Partnership
De-Mystifying Public-Private Partnerships
Characteristics that impact the credit analysis:• Marketing and management
• Project assistance• Cash flow• Construction risk• Non-compete clause• Guarantees and support agreements
Source: Moody’s Investors Service
Financing Models Public Private Partnership
De-Mystifying Public-Private Partnerships
School Developer/PPP Required DCR 1.00 >1.25
Revenue $3,000,000 $3,000,000Expenses $1,000,000 $1,000,000 Net Operating Income $2,000,000 $2,000,000
Max Available for P & I $2,000,000 $1,600,000(Debt Service = NOI / DCR)
Net Cash Flow $ 0 $ 400,000
Max Loan Amount @ 6% $28,000,000 $22,000,000
* School could obtain an even larger loan because loan rate would likely be more favorable than rate for developer.
Financing ModelsImpact of Debt Coverage Requirement
De-Mystifying Public-Private Partnerships
Developer tools
• Increase student rent• Lower construction quality• Reduce services and amenities• Increase density• Eliminate non-rentable space
Financing ModelsOptions for increasing NOI
De-Mystifying Public-Private Partnerships
With public-private partnership
• All of developer’s tools, PLUS…• Long-term master lease• Guarantee occupancy in year one• Donate campus infrastructure• Affiliation or referral agreement• Subordinate campus services to
debt service
Financing ModelsOptions for increasing NOI
De-Mystifying Public-Private Partnerships
• Should be motivated by institutional need, and executed based on institutional values
• Can provide the institution an optimal balance of control and risk
• Are not the best solution for every campus• Are long-term relationships requiring
thoughtful, well-informed planning
Public-Private Partnerships…
De-Mystifying Public-Private Partnerships
“You can privatize your housing, but you can not privatize your
relationship with students and parents”
Public-Private Partnerships…
De-Mystifying Public-Private Partnerships
Thank You!Sarah Samuels - [email protected] Staten – [email protected]
Jason Taylor – [email protected]
www.thesciongroup.comwww.louisville.edu/housing
