When going into the negotiation phase for a public-private partnership, it is important to remember that a viable project is in everyone’s best interest.
Of course there will be discussions about rents, parking, design elements, construction materials, and operations, but there are also some other common negotiating points that are often misunderstood or not expected. Surprises may be fun when it is your birthday, not so much with a highly complex and strategic project. Addressing issues early can help to avoid complications later.
4 Common Issues to Address
Here are some issues to consider early on:
1. Applicability of Existing University Contracts
Unless communicated early to the developer, it is likely the developer may assume they are at liberty to use their own contracts for vending, laundry and other project services and amenities. With these contracts comes some understanding or assumption of cost (or cost avoidance) and project revenues. If the university has entered into master agreements which are, or will be, applicable to the project, this should be communicated early.
2. Limitations on Eminent Domain and/or Buyout Clause
Due to varying appraisal methodologies and the fact that some developers may create a financial structure that does not properly compensate the developer until the later years of a ground lease, the university should anticipate requests by developers for some limitations on the university’s ability and/or timing of any project acquisition other than the normal termination of the ground lease.
3. Data and Information Sharing
Both parties in a P3 will want data and information. Much of that information is simple fact finding, but other types of information may be required or restricted by laws such as FERPA or the Clery Act. Not all developers, especially those new to higher education, will be aware of these laws. Universities should state early in the negotiating process what type of information will be shared and how that information is to be treated, and the university should inform the developer what types of information the university will require. Similarly, the developer should assert early what type of information they would like, the purpose and use of such information, and provide the university time to consider the request and respond.
4. Specialized Local Information
While there are common elements in higher education that all institutions share, there are also local issues for specific universities where unique laws, or Board/Regents policies create unique circumstances material to P3s. Institutions should elevate and help educate the developer of these requirements early, so effort is not spent on non-permissible project components or deal structures.
Checklist: Additional Items that May Come Up
While each P3 is unique, and developers may have varying approaches that result in different questions or requests; below is a list of additional requests you may encounter:
Competitive landscape of your campus
- Request to lease portions of the project such as retail spaces
- Safeguards on the development of similar projects to properly manage supply
- Safeguards for on-campus housing rates to ensure reasonable competitive parity between new and existing housing products
- Some consideration for the developer to phase the project or future housing
- Ability for customers of the project to use other university services such as parking, health and recreation centers, alternative transportation programs, etc.
- Occupancy related requests such as first fill, or assignments on parity with other housing
- Co‐marketing agreements for campus housing
- Exploration if the university can /will provide any infrastructure capacity or utilities to the project
Operating Agreements/Lease Terms
- Some developers may desire to collect rents for housing themselves, others may desire the university to collect rents in a manner similar to existing housing
- Summer conference revenues
- 12‐month leases instead of academic year
- Right to sell, transfer or assign interest in the project to another party
- Right to list asset or lease hold interest as collateral for lending
- What university policies will apply to the project?
- Coordination of public information releases
Knowing what to expect in your earliest conversations and most importantly, knowing where your institution stands on these important decisions, should be part of your early due diligence if you are considering public/private partnerships on your campus.