In public-private partnerships (P3s), ground leases have become a helpful tool for public agencies to facilitate the development of affordable housing, schools, community facilities, and infrastructure development on publicly owned land. In a typical scenario, a long-term ground lease by a public partner permits a private partner to develop a project on public land. Whether or not a ground lease is a good delivery approach in a public-private development project can vary significantly based on who owns the land at the outset.

When The Public Owns the Land

Ground leases are a logical choice in public-private development scenarios when the public agency already owns the land on which the private partner will develop the project:

1. Control and Oversight: Ground leases allow public agencies to control the land, ensuring the development aligns with public objectives and community needs. This oversight is crucial in public-private partnerships when the public’s interest is paramount.

2. Revenue Generation: Through ground leases, public agencies can generate consistent revenue streams over extended periods, benefiting municipalities or agencies seeking long-term financial stability from an asset.

3. Risk Mitigation: By leasing the land rather than selling it to a private partner, a public agency can mitigate potential risks associated with development failures or non-compliance by the private partner. The lease terms can be structured to ensure the land reverts to the public agency in such scenarios.

4. Preservation of Public Ownership: Ground leases in public-private partnerships allow a public agency to maintain ownership over public land, which may be located in high-value urban areas or close to other public facilities. They also offer flexibility for a public agency that may change the future use of the property.

When The Public Does Not Own the Land

When neither the public agency nor the private partner owns the land earmarked for development, or the private partner owns the land, opting for a ground lease might not make sense:

1. Added Complexity: Acquiring or reconveying land for the sole purpose of establishing a ground lease adds an unnecessary layer of complexity to a public-private project. Direct acquisition and ownership by a private partner streamlines the negotiation and development process.

2. Increased Costs: When a public agency acquires land it does not own, it will incur acquisition costs and ownership liability only to lease the land to the private partner. This increases project costs, potentially making the project’s private component less economically viable while reducing the public benefit achieved because of unnecessary added project costs.

3. Delay: The process of acquiring land, followed by negotiating a ground lease, introduces significant delay to a project timeline. In the fast-paced world of real estate and infrastructure development with constant market fluctuations and escalating construction costs, time is of the essence in delivering viable projects.

4. Public Review: Public-private developments often involve multiple sources of public and private financing, and transaction documents and agreements typically must be reviewed by public grant agencies and lenders. Public staff only offer guidance after a final review of project documents, which introduces significant uncertainty into the document preparation and negotiation process. Because of the complexity of ground leases, public comments received after ground lease negotiations can undo months of progress and materially impact the project schedule.

In a public-private development project, partners must assess the merits, risks, and challenges of using a ground lease on a case-by-case basis, ensuring their approach aligns with the project’s objectives, timeline, and broader community interests. While a ground lease may be a suitable ownership vehicle for a public agency that already owns the land, defaulting to a ground lease in other land ownership scenarios can introduce unnecessary complexities, costs, and delays that create more risk for a project than the risk the public agency is trying to mitigate with a ground lease approach.

INNOVATE P3 helps partners identify, analyze, and structure ownership frameworks that optimize the benefits of public-private partnerships.

 Historic mills stand as proud reminders of America’s industrial past. For residents, they also serve as an anchor of stability in a rapidly changing world. However, as time passes on these historic structures, there is a growing urgency to stabilize, preserve, and repurpose abandoned mills before they deteriorate beyond repair.

Often inheriting dilapidated mills and their associated environmental risks, upkeep costs, and security hurdles, local governments are keen to explore opportunities to unlock their potential. In addition to their value as heritage sites, a historic mill can represent a redevelopment opportunity to spur economic growth, boost tourism, and host new community facilities. Local governments typically lack the resources and expertise to rehabilitate properties independently, turning to public-private partnerships (P3) as a tool for historic mill redevelopment.

Laying the Groundwork for a P3 in Historic Mill Redevelopment

Before issuing a P3 solicitation for a private partner, a municipality must craft an implementation plan to guide a successful P3 strategy. Among many issues to consider:

  1. Envision the Mill’s Redevelopment: Prioritize desired outcomes like historic preservation, economic revitalization, or creating a cultural hub.
  2. Assess Public Support: Gauge the readiness of leaders to back the redevelopment financially and politically.
  3. Plan the Infrastructure: Identify essential public infrastructure and potential funding sources to support the project.
  4. Blueprint the Project: Draft a realistic timeline and budget for the project.
  5. Clarify Roles: Define public and private stakeholders’ roles, expectations, and benchmarks for success.

While foundational plans are important for a successful P3, flexibility is critical. Allow room for private partners to leverage their insights and expertise and adapt to evolving market conditions.

Crafting an Effective P3 Request for Qualifications (RFQ)

A well-framed P3 RFQ is a vision statement and an outline of how the local government will execute a project. It should demonstrate the municipality’s commitment to leverage the benefits and address the challenges of a P3. Instead of demanding design specifics and financial data from respondents, emphasize the public project team’s clarity of purpose and preparedness. Focus on evaluating potential partners for their alignment with the town’s goals and resources.

Collaborate, Adapt, and Overcome

Even with the right P3 partner on board, challenges will arise. Anticipate structural surprises in the building, regulatory hurdles, community resistance, and market flux. An adaptable implementation plan and well-defined public-private partnership can navigate and overcome challenges as they arise.

Be Realistic, Be Ready

Sometimes, a historic mill property might not be ripe for immediate private investment through a P3. In such cases, a town’s initiative to enhance infrastructure, host community programming, and invest in supporting public facilities will lay the groundwork for a future P3 and signal the local government’s commitment to the project’s long-term success.

Florence Mill: Laying the Groundwork for a Historic Mill Redevelopment

The Florence Mill in Forest City, North Carolina, represents an example of public investment preceding a P3 in a historic mill redevelopment project. The Town has taken the lead in revitalizing the mill property, investing in the mill’s structural stability, adding a public amphitheater, bolstering infrastructure, and building an adjoining rail trail connecting with neighboring towns in Rutherford County. As the Town sets out to engage a development partner, the Town’s efforts showcase its dedication and readiness for the rehabilitation of the 1986 mill building through a P3.

INNOVATE P3 guides local governments in conceptualizing, strategizing, and implementing P3s to redevelop historic mills by emphasizing careful advanced planning and creating compatible and value-added public-private partnerships.