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TO: Mayor and City Council THE On or Aswv
FROM: Chris Everson, Affordable Housing Project Manager
THROUGH: Steve Barwick, City Manager
DATE: April 24, 2009
MEETING DATE: April 28, 2009
RE: Exploration of Public -Private Partnerships for Affordable Housing
Summary:
Staff is requesting direction for exploration of Public -Private Partnership opportunities for affordable housing
Background:
Public -Private Partnership (From Wikipedia): Public -Private Partnership describes a government service or
private business venture which is funded and operated through a partnership of government and one or more
private sector companies. These schemes are sometimes referred to as PPP or P3.
In some types of PPPs, the government uses tax revenue to provide capital for investment, with operations run
jointly with the private sector or under contract. In other types, capital investment is made by the private sector
on the strength of a contract with government to provide agreed services. Government contributions to a PPP
may also be in kind. In projects that are aimed at creating public goods like in the infra§tructure sector, the
government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the
private investors. In some other cases, the government may support the project by providing revenue subsidies,
including tax breaks or by providing guaranteed annual revenues for a fixed period.
Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to
develop, build, maintain and operate the asset for the contracted period. In cases where the government has
invested in the project, it is typically (but not always) allotted an equity share in the SPV. The consortium is
usually made up of a building contractor, a maintenance company and bank lender(s). It is the SPV that signs
the contract with the government and with subcontractors to build the facility and then maintain it. In the
infrastructure sector, complex arrangements and contracts that guarantee and secure the cash flows, make PPP
projects prime candidates for Project financing. A typical PPP example would be a hospital building financed
and constructed by a private developer and then leased to the hospital authority. The private developer then acts
as landlord, providing housekeeping and other non medical services while the hospital itself provides medical
services.
Previous Council Action:
Use of 150 Fund for land -banking
Discussion:
Given the current economic environment and the projected revenues for the 150 Housing Development Fund,
funding for new affordable housing will be a significant challenge. Exploring PPP opportunities could help the
City find creative ways of minimizing public subsidies for the creation of new affordable housing. Private sector
developers are hungry for new opportunities to propose creative business ideas, and the City could take
advantage of this opportunity to explore new ideas.
The goal of this memo and discussion is to suggest that the City craft RFQs for the 802 West Main Street
property as well as the 517 Park Circle property. These RFQs could be designed to open up the scope of
Page t of 3
potential development to include private financing, long term rental operation and maintenance as well as
potential additional concessions that private developers could take advantage of for long-term operational
partnerships with the City. By leveraging the expertise and creativity of private sector developers, the City
could potentially explore many different options.
One of the keys to successful PPP arrangements is to allow private developers to do what they do best —
compete. RFQs need to be designed so that they describe to developers in general terms what the City expects
to receive, but still provide private firms with enough flexibility to come up with creative ways of delivering it to
the public. In terms of affordable housing, RFQs would need to describe to potential developers some
parameters that City Council would consider reasonable components of a proposal, such as:
1) Building program (quantity and type of units, size of units, number of bedrooms, category mix, etc.)
2) Whether units could be for sale or for long-term rental or for some other type of use
3) % affordable housing and/or % free market and/or other type of use
4) Developer -owned or City -owned or APCHA-owned or some other arrangement
5) Potential for reversion of ownership after some time period
6) Land -lease of City property or transfer of ownership or some other arrangement
7) Developer -managed or APCHA-managed or some other management arrangement
8) Property management contract for some time period
9) Other concession contracts of some kind for some time period
All of these options create tools that a private developer may be able to employ in crafting a proposal that could
bring value to the developer in some way which in turn allows the developer to deliver housing to the City at a
price that is potentially below what the City would expect to pay if the City were to cash -finance the
development of housing on its own. Staff would also expect that City Council would want these proposals to
include additional information such as:
1) What is the overall project vision? Please provide architect drawings or sketches.
2) Detailed financing proposal
3) Development pro -forma, including the respective private capital and/or public capital components
4) Use of non -City of Aspen public capital — sources and likelihood of availability
5) Emphasis on how to finance the project without any additional Aspen contribution beyond the land value
6) If rental properties, provide an operating proforma and an explanation of property management and reserves
7) Ultimate ownership stakes/disposition if rental
8) Zoning variances requested to make the proposal work
9) Developer's assessment of the neighborhood viewpoints and any challenges to the project
10) How does the proposal advance the community interest in providing for workforce housing?
11) If you propose to develop on property you control and swap that for City land, define the pros and cons and
potential financial implications.
All of the above mentioned options should be considered by City Council as to whether or not these things
would be reasonable elements of an RFQ and/or a potential proposal for development. By issuing these RFQs,
the City would in no way obligate itself to engage any developer. At the very least, the City could gain
knowledge as to whether or not there are any viable options that have not yet been explored.
Financial Implications:
Exploration of potential ways to lower housing subsidies
Page 2 of 3
Proposed Next Steps:
1) Develop and issue RFQs
2) Receive, review, cull responses, and review with Council for direction
3) If desired, enter into more detailed discussion with proposers
4) Potentially receive more formal, detailed proposals, and review with Council
5) Potentially negotiate contract(s)
Recommendation:
Staff recommends that City Council allow staff to develop RFQs for PPPs for the creation of affordable housing
at 802 West Main Street and 517 Park Circle.
City Manager Comments:
Attachments:
1) Maps of potential housing sites
2) Blowup maps of 517 Park Circle and 802 West Main Street
3) PowerPoint Deck on PPPs
Page 3 of 3
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a The
f PUBLIC f RIVATE f ARTNERSHIPS
AspenApril 24, 2009 Page 1 of 7
WHAT IS THE BASIS FOR CONSIDERING THE USE
OF PUBLIC PRIVATE PARTNERSHIPS?
• GOVERNMENT RECOGNIZES THAT, WHILE THERE ARE
SOME ACTIVITIES THAT THE PUBLIC SECTOR CAN DO
WELL, THERE ARE OTHER ACTIVITIES WHERE THE
PRIVATE SECTOR- HAS MORE TO OFFER -
THE OVERALL AIM OF PPP'S IS TO STRUCTURE THE
RELATIONSHIP BETWEEN THE PUBLIC AND PRIVATE
SECTORS IN SUCH A WAY THAT THE ACTIVITIES AND
RISKS ASSOCIATED WITH THE SPECIFICATION, DELIVERY
AND REGULATION OF PUBLIC SERVICES ARE
ALLOCATED TO THE PARTY BEST ABLE TO MANAGE
THEM.
Ac cy of 1'TIMIC PRIVATE PARTNERSI 11 S
s pen April 24, 2009 Page 2 of 7
i. .,
WHAT ARE THE POTENTIAL BENEFITS OF PUBLIC
PRIVATE PARTNERSHIPS?
BETTER VALUEFOR.MONEY- COST OF SERVICE DELIVERED VIA PPP IS USUALLY
LOWER THAN TRADITIONAL PROCUREMENT
BETTER OUALITYSER VICES- QUALITY OF SERVICE DELIVERED VIA PPP IS USUALLY
HIGHER THAN TRADITIONAL PROCUREMENT
FASTER PROf£CTD£LIVF_R.Y- THE SPEED OF PROJECT DELIVERY VIA PPP IS USUALLY"
FASTER THAN TRADITIONAL PROCUREMENT
MOREPROIECTD£LIVERY- PPP'S CAN ENABLE MORE INFRASTRUCTURE PROJECTS TO
BE CARRIED OLIT WH HIN A PERIOD OF TIME
GREATER CERTAINTY- RISK TO THE PRIVATE SECTOR PROVIDES GREATER -
CERTAINTY AND PREDICTABILITY FOR COST AND QUALITY
BETTER ASSETUTILIZATION- PRIVATE SECTOR CAN GENERATE REVENUES FROM TFIE
COMMERCIAL UTILIZATION OF PUBLIC SECTOR ASSETS WHICH CAN REDUCE THE
COST OF PUBLIC SERVICE PROVISION
BFTTFR REGULATION- LOCAL GOVERNMENT CAN FOCUS ON PUBLIC SERVICE
PLANNING AND PERFORMANCE MONITORING RATHER THAN ON THE
MANA\GFMFNT OF DAY-TO-DAY SERVICE DELIVERY
ENHANCED COMPETITIVENESS- CO\IPFTI HON LN \BL.ES THE QL I \LITY AND COST OF
SERVICES TO BE BENCI-IMARKED AGAINST MARKI I STANDARDS
c tv , PUBLIC PRIVATE PARTNERSHIPS
Aspen =,,.
April 24, 2009 Page 3 of 7 %
LEVERAGING THE STRENGTHS OF PRIVATE
COMPETITIVE INDUSTRY
• WITH PPP'S, THE PRIVATE SECTOR CAN LOOK FORWARD TO
PROVIDING A WIDER RANGE OF SERVICES OVER A LONGER
CONTRACT PERIOD (USUALLY BETWEEN 15 TO 30 YEARS) AND
THUS HOLD A GREATER STAKE IN THE OUTCOME OF A
DEVELOPMENT PROJECT
• PPP'S ALLOW GOVERNMENT TO TAP INTO PRIVATE SECTOR
CAPACITY TO INNOVATE. THIS IS ACHIEVED BY GOVERNMENT NOT
SPECIFYING EXACTLY HOW A SERVICE SHOULD BE DELIVERED OR -
HOW AN ASSET HAS TO BE DESIGNED AND BUILT. INSTEAD,
GOVERNMENT SPELLS OUT THE SERVICES IT NEEDS AND THE
DESIRED OUTCOMES. THE PRIVATE SECTOR CAN THEN
INTRODUCE INNOVATIVE SOLUTIONS TO MEET GOVERNMENT
JECTIVES.
v e PLI13LIC PRIVATE f ARTNLR' sl III'S = ` "`•�- ;#
City of _
Aspen April 24, 2009 Page 4 of 7 -::•`
PROJECT DELIVERY CONTINUUM
MORE GOV'T LLSS CC\
INVOLVEMENT INV�_"I \1 \II.N I
DESIGN/
BID/
BUILD
DESIGN/
BUILD
DESIGN/
BUILD/
MAINTAIN
CONST. DESIGN/
MGR. BUILD
O( RISK W/ ECI
IN I I RA I I DB/
CON I RAC I OR L.I AD DB
DESIGN/
BUILD/
OPERATE/
MAINTAIN
(BOT)
DESIGN/
BUILD/
OPERATE
(BTO)
BUILD/
OWN/
OPERA-H
BUILD/
OWN/
OPERATE/
TRANSFER
CONCLSSIONS
PEM-ORMANCL-BASED MAINTENANCE CON HtAC IS
PKIVATL_
DEV
DESIGN/
BUILD/
FINANCE/
OPERATE/
MAINTAIN
'IOV I I R I
II \-I
citty"of PUBLIC PRIVATE PARTNERSHIPS y h}
,I
Aspen April 24, 2009 Page 5 of 7
BASIC CHARACTERISTICS OF PUBLIC PRIVATE
PARTNERSHIPS
• CONTRACT BETWEEN A PUBLIC BODY AND A PRIVATE ENTITY
• RELATIVELY LONG DURATION OF THE CONTRACT
• PRIVATE ENTITY EITHER DESIGNS -BUILDS -OPERATES (DBO) OR
DESIGNS -BUILDS -FINANCES (DBF) FACILITIES
• PRIVATE ENTITY IS FINANCED BY PRIVATE INSTITUTIONS
(AGREEMENT MAY INCLUDE RISK TRANSFER, INSURANCE AND
"STEP-IN" CLAUSES)
• PUBLIC BODY EITHER PAYS UPON COMPLETION OF THE PROJECT
OR AGREES ON A CONCESSION
The
Aspen
PLIBLIC. PRIVATE PARTNERSI ZIPS
April 24, 2009
Page 6 of 7
POTENTIAL ELEMENTS OF AN AFFORDABLE HOUSINC
PPP - FOR COUNCIL REVIEW AND DISCUSSION
BUILDING PROGRAM QUANTITY AND TYPE OF UNITS, SIZE OF UNITS,
NUMBER OF BEDROOMS, CATEGORY MIX, ETC.)
A) UNIT SIZES -TO BE BASED ON APCI-IA GLIIDELI NES OR STANDARDIZED SIZES?
B) BEDROOM MIX- PRIMARILY S FUDIO + I BEDROOMS + SOML 2 BEDROOMS?
C) CATEGORY MIX - LIGHT ON CATEGORIES 5, 6, 7?
2. WI-IETFIER UNITS COULD BE FOR SALE OR FOR LONG-TERM DENTAL
OR FOR SOME OTHER TYPE OF USE
A) LONG-TERM RENTALS WILL CREATE MORE OPPORTUNITIES FOR FINANCING
B) COULD ENCOURAGE LONG-TERM RENTAL WITH REVERSION TO FOR -SALE AFTER
SOME PERIOD OF TIME
3. % AFFORDABLE HOUSING AND/OR % FREE MARKET AND/OR OTHER
TYPE OF LISE
A) FKF[ NUU'\KFT COMPONENT COULD I-IFLP SLIBSIDIZL AFFORDABLE I-IOUSING
B) 60%, AFTOKDABLL - 40% FREE MARKET OR CONSIDER ADDITIONAL OPTIONS
4. DI' _.VI-LOPER-OWNED OR C I Y-OWNED OR APCHA-OWNED OR SOME
OTHER ARRANGEMENT
A) IS THE CITY AMENABLE TO DEVELOPER -OWNED SCENARIOS?
I; RF\TR IO\ Tj) CITI O\\ NFRSIIIP ;\I TFR SOME TIMF PERIOD A PLLIS?
a vof PUBLIC PRIVATE PARTNERSITIPS
As pe n April 24, 2009 Page 7 of 7
PO I ENTIAL ELEMENTS OF AN AFFORDABLE HOUSING
PPP - FOR COUNCIL REVIEW AND DISCUSSION
5. POTENTIAL FOR REVERSION OF OWNERSHIP AFTER SOME TIME
PERIOD
A) COULD BE A GOOD TOOL TO ALLOW LONG-TERM PARTNERSHIPS THAT COULD
POTENTIALLY CREATE OPPORTUNITIES THAT MAY OTHERWISE NOT EXIST
b. LAND -LEASE OF CITY PROPERTY OR TRANSFER OF OWNERSHIP OR -
SOME OTHER ARRANGEMENT
A) CREATIVE OWNERSHIP ARRANGEMENTS MAY CREATE OPPORTUNITIES -I-O LOWER -
THE CITY'S UPFRONT COSTS
7. DEVELOPER -MANAGED OR APCHA-MANAGED OR SOME OTI-IER
MANAGEMENT ARRANGEMENT
A) LONG-TERM MANAGEMENT CONTRACTS MAY CREATE OPPORTUNITIES TO
LOWER THE CITY'S UP -FRONT COSTS
8. PROPERTY MANAGEMENT CONTRACT FOR SOME TIME PER10D
A) LONG-TERM MANAGEMENT CONTRACTS MAY CREATE OPPORTUNITIES TO
LOWER -1-1 IE CITY'S LIP -FRONT COSTS
9. OTHER CONCESSION CONTRACTS OF SOME KIND FOR SOME TIME
PERIOD
\) LONG-TERM \1:,\NAGL\I[NT CONTRACTS MAY CRL.,\TL OPPORTUNITIES TO
LOWER 1-1-IL LI I Y'S UP-FRON 1 COSTS (LXA,\IPLE: SNOW RL\10VAL CONTRACT)