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.

Innovation ecosystems have gained significant attention in recent years, although the concept is not new. Throughout history, human progress has been driven by the interconnectedness of various actors, institutions, and ideas, which laid the foundation for contemporary innovation ecosystems. During the Renaissance, the exchange of knowledge, ideas, and resources flourished in city-states like Florence. The Medici family, renowned patrons of the arts and sciences, created an environment that fostered collaboration and innovation, bringing together artists, scientists, philosophers, and entrepreneurs. This vibrant network of thinkers and doers revolutionized artistic and intellectual endeavors and paved the way for groundbreaking advancements in fields such as architecture, engineering, and mathematics. The Medici’s support, coupled with a thriving cultural and economic environment, exemplified the fundamental elements of an innovation ecosystem: diverse talents, entrepreneurial spirit, knowledge exchange, and supportive institutions.

Today, vibrant innovation ecosystems continue to foster collaboration, fuel economic growth, and drive innovation across industries. The modern-day innovation ecosystem resides in the innovation district.

  1. What is an Innovation Ecosystem? An innovation ecosystem is a dynamic network of interconnected entities, including organizations, institutions, individuals, private entities, and resources, that collectively contribute to the generation, diffusion, and commercialization of new ideas and technologies. Physical facilities can support an innovation ecosystem, but at its heart, it is a programmatic web of partnerships and collaboration. The most successful and enduring ecosystems encompass diverse economic and community interests and industries. They also have access to financial resources and an educated and multicultural workforce.
  2. What is an Innovation District? An innovation district is a physical area that gathers components of an innovation ecosystem in one location. The proximity of interconnected uses facilitates cooperation and provides a supportive environment for innovation-driven activities and in-person collaboration. Innovation districts typically are centered around research institutions and universities and feature integrated spaces for startups, established businesses, investors, and cultural amenities. This mix of innovation uses creates a vibrant ecosystem that encourages spreading and sharing ideas.
  3. What Makes an Innovation District Successful? While vibrant places support innovation districts, a fledgling district will not thrive on coffee shops and co-working spaces alone. The success of an innovation district hinges on several factors. First, the creation and support of the district require strong leadership from a single institution or stakeholder partners who share a vision to drive collaboration and strategic initiatives in and around a specific location. The selected area must be able to support new development or redevelopment with a focus on physical and digital connectivity and infrastructure. Accessibility is critical to provide tenants with transportation options and connect the district to the broader community. Programming and partnerships are the most crucial element to the success of an innovation district. Intentional and consistent programming by the district’s leadership supports the growth of diverse industries, ensures the availability of flexible and shared spaces, and fosters a culture of innovation and entrepreneurship.

The historical precedents for innovation ecosystems and districts remind us of the importance of collaboration and interdisciplinary approaches in advancing innovation and driving societal progress. Innovation ecosystems continue to thrive and evolve in innovation districts worldwide, which coalesce diverse stakeholders in an environment conducive to innovation and economic growth.

Innovate P3 works with institutions of higher education and professional schools to develop programmatic blueprints for innovation ecosystems and to incorporate those programs into new projects designed to create vibrant and sustainable innovation districts.

Public-private partnerships (P3s) face many challenges in the United States. One key difficulty is the complex regulatory environment (or lack of a clear and consistent regulatory framework) that creates uncertainty and confusion among multiple levels of government, leading to lengthy and ambiguous implementation processes and bureaucratic indecision. Creating clear legislative guidelines at the federal and state levels is crucial for P3s to succeed for many reasons:

  1. Legal Certainty: Legal certainty is essential for successful P3s. Establishing clear legislative guidance at the federal and state levels is crucial as it defines rules, procedures, and requirements for various aspects of P3 projects, such as project development, public funding, procurement, contracting, and risk management. By providing realistic and transparent legislative parameters, P3 stakeholders have a solid foundation for their involvement, leading to expedited contract preparation and negotiation and minimizing the potential for legal disputes during implementation
  2. Regulatory Consistency: Many P3s involve public funding from multiple sources, each of which carries its own set of compliance requirements. Reconciling the applicability and priority of funding compliance regulations creates confusion and audit risk for public agencies and complicates P3 implementation. In addition, public agencies are subject to internal and external policies and regulations that affect their decision-making at every stage of the P3 process. Regulatory and compliance consistency is critical for P3s to be successful and to expand their use.
  1. Accountability: Legislative frameworks play a vital role in fostering transparency and accountability for P3 initiatives. They establish fair and equitable project selection, evaluation, and procurement procedures, ensuring decisions are made objectively based on relevant data and considerations. By providing clear guidelines, they also create accountability mechanisms that facilitate monitoring and enable holding P3 partners responsible for their obligations.
  1. Efficiency and Effectiveness: Well-defined P3 statutes enhance the efficiency and effectiveness of program delivery. They establish clear standards for timelines and approval processes and can define procedures for contract negotiation, approval, and execution. This clarity accelerates project and program development, minimizes administrative bottlenecks, and eliminates unnecessary delays
  2. Modernized Procurement: P3s around the country typically employ outdated and incompatible procurement statutes and processes that were never tailored for private participation in public projects. The result is a patchwork of highly subjective and politicized decision-making practices and policies that fail to address the needs of sophisticated P3s. A modern P3 statutory framework creates pragmatic and objective selection processes and standards that public agencies can use to identify projects most suited for P3s and to solicit and select qualified private partners to execute the projects in collaboration with the public.
  1. Investor Confidence: Carefully crafted legislative frameworks are pivotal in instilling investor confidence in P3s. When investors understand the legal framework governing P3s, including their rights, obligations, and protections, they are more inclined to engage in such projects. A stable and predictable legal environment fosters confidence among investors and promotes long-term commitments from private partners. Additionally, it enables public partners to attract highly qualified and sophisticated private partners nationwide, thereby enhancing the quality and viability of local P3 projects.
  1. Standardization and Best Practices: P3 statutory frameworks should standardize processes, adopt best practices, and incorporate lessons learned from projects nationwide. They should include provisions for establishing model contract templates, defining performance standards, and allocating risks effectively. This standardization enhances project efficiency, reduces transaction costs, and improves the overall quality of P3 implementation.
  2. Flexibility and Innovation: While legislative frameworks can offer clarity and structure, they must also be flexible and adaptable as public partners gain P3 experience. They should accommodate diverse project types, adjust to evolving needs, and encourage innovation in design, financing, and delivery. This flexibility ensures that legislative intent is preserved, relevant, and responsive to changing market conditions and emerging trends.

Addressing the challenges faced by P3s requires clear, comprehensive legislative guidance that provides legal certainty, regulatory consistency, accountability, and flexibility. With well-structured statutory frameworks, public agencies can instill investor confidence, attract new partners, and elevate project viability and quality. By embracing a more thorough and complete approach to P3s at the federal and state levels, public leaders can supercharge interest and participation in P3 collaborations to drive new infrastructure development, clear deferred maintenance backlogs, and leverage public assets to enhance communities nationwide.

Innovate P3 works with public leaders to develop practicable implementation strategies and plans to streamline P3 administration and oversight. Our approach to P3 implementation centers on local, state, and federal compliance and risk mitigation, and Innovate P3 is uniquely positioned to help state and federal policy makers tailor comprehensive legislative frameworks for P3 projects and programming nationwide.

Transit-oriented development (TOD) integrates public transit with land use and development to promote walkable, and vibrant neighborhoods that reduce reliance on private vehicles and enhance the use of public transportation. TOD locates residential, commercial, and community uses in close proximity to each other and to transit stations or hubs, making it more convenient and attractive for people to walk, bike, or use public transportation instead of relying on cars. There are several types of TOD that serve a variety purposes:

  1. Destination TOD: These projects create vibrant urban spaces that attract residents and visitors as local or regional destinations. They typically feature mixed-use retail centers, entertainment venues, cultural attractions, or recreational facilities. By drawing outside visitors, these TODs encourage the use of public transit to reach the destination.
  2. Transit-Hub TOD: This type of TOD focuses on the functionality and operations of transit stations or hubs where multiple transportation lines converge, such as train or bus stations. Commercial and public spaces in these TODs cater to the needs of transit users, providing convenient services and amenities. They include retail stores, restaurants, cafes, convenience stores, and services that serve commuters and pedestrians. Well-executed developments create a bustling and pedestrian-friendly environment around transit hubs, incentivizing public transit use by facilitating access to daily amenities.
  3. Neighborhood Services TOD: Neighborhood Services TODs provide essential amenities and services within walking distance of residential areas or integrated communities. Community and retail spaces cater to the daily needs of residents, enabling them to access goods and services without relying on private vehicles. They typically include grocery stores, pharmacies, small-scale retail shops, restaurants, healthcare facilities, and other community-oriented services.
  4. Employment-Oriented TOD: This type of TOD focuses on creating spaces that meet the needs of the neighborhood’s workforce. It includes office buildings, co-working spaces, business centers, and support services such as restaurants, cafes, and convenience stores. The goal is to provide amenities and services that support nearby workers and encourage public transit commuting. By locating job opportunities near transit hubs or along transit lines, this type of TOD aims to reduce traffic congestion and the need for commuter parking.
  5. Mixed-Use TOD: Mixed-use TOD combines various land uses, including commercial, retail, and residential, often incorporating elements of destination-oriented, transit-hub oriented, and/or neighborhood services-oriented TOD. These developments create vibrant and diverse environments where people can live, work, shop, and enjoy recreational activities within a walkable, pedestrian-oriented area. They include a range of retail spaces, from small local shops to larger anchor stores or entertainment venues, fostering a sense of community by offering services and amenities within walking distance.
  6. Innovation-Oriented TOD: Innovation-oriented TODs create environments conducive to research, development, and innovation, especially around universities. These developments feature commercial and retail spaces tailored to technology-based industries, research institutions, startups, and incubators. The goal is to foster a collaborative ecosystem that supports knowledge-based industries and attracts a talented workforce. Innovation-oriented TOD can include office spaces, co-working areas, research facilities, educational institutions, and retail spaces tailored to students, entrepreneurs, researchers, and office workers.
  7. Cultural-Oriented TOD: Cultural-oriented TOD emphasizes arts, culture, and creativity in the neighborhood. These projects often include commercial spaces that support cultural institutions, art galleries, performance venues, and creative industries. Public investment drives the creation of a vibrant cultural scene that attracts residents, visitors, and artists, enhancing the cultural richness of the community. Cultural-oriented TOD can also include retail spaces offering unique products related to art, crafts, or cultural experiences.

In practice, TODs often incorporate elements from multiple development types to create a diverse and vibrant environment that supports public transit use, enhances the quality of life, and reduces dependence on private vehicles. While a specific TOD project may include multiple elements, it is essential to prioritize the primary goals of TOD to create a cohesive and successful project theme that aligns with community goals and achieves a reliable financial return.

Innovate P3 collaborates with public agencies and design teams to deliver TOD projects more effectively and with less risk compared to traditional public-private partnership (P3) development approaches.

Every partnership should begin with a carefully drafted business term sheet. Prematurely launching into agreement drafting without an outline of essential terms deprives parties of a valuable step in the partnership formation process. Consider the following tips for drafting better term sheets:

  1. Be clear about the purpose of the term sheet. A term sheet delineates the material expectations of the parties and creates a business framework around which a legal agreement can be prepared. While a term sheet will not be a definitive, binding agreement, it serves as an anchor for foundational deal terms. It also helps set internal expectations for each party’s business team and board. Setting internal and external expectations is critical to creating a successful partnership.
  2. Learn more about your partner. The process of preparing a term sheet can be as valuable to a budding partnership as the term sheet itself. At this early stage, stakeholders have a lower-stakes opportunity to feel out the other party on substantive issues, negotiation style, and temperament. For example, if one party can’t commit to anything, is prone to excessive word-smithing, or keeps kicking the can down the road on material terms, the other party should quickly get a good sense as to whether they have selected the right partner or program delivery method.
  3. Include only the material terms of the deal. Keep the term sheet simple, and don’t get lost in detail. Don’t let the term sheet devolve into legalese. When a complex term requires explanation, include a brief narrative explaining the intent of the parties, rather than prematurely drafting contract language.
  4. Make sure the term sheet is internally consistent and complete. While a term sheet should be concise, make sure terms are consistent with each other and major concepts tie together with no gaps in logic or sequence, particularly concerning schedules and costs. Add charts or tables to capture detail that is too cumbersome for narrative. (Bonus: charts and tables tend to reveal inconsistencies not apparent in traditional paragraph form.)
  5. No two term sheets should look the same. What constitutes a successful term sheet will be defined differently across partnerships. Some will be more detailed than others, and others may be more aspirational than definitive. Don’t let term sheet templates blind you to the material terms and needs of your partnership.                                

Engaging attorneys to prepare an agreement before business terms are clearly articulated often results in lost time and higher-than-expected legal fees. A well-developed term sheet not only will lay the groundwork for better agreements, but the process of preparing the term sheet will also provide a structured path to building a successful long-term partnership.  

Innovate P3 works with clients to identify, prioritize, and articulate clear business and policy objectives for contracts and governing documents throughout the programming phase to streamline agreement preparation and negotiation.

Development agreements are critical in memorializing partnerships between local governments and private partners on public-private projects. Consider these tips for creating better public-private development agreements:

  1. Start with a term sheet. Effective development agreements start with robust business term sheets. Too often, development partners begin drafting legal agreements before business terms are thoroughly vetted. Investing early effort in a well-considered term sheet helps the business team chart the project’s course and saves time and legal fees later.
  2. Focus on development terms. A well-crafted development agreement is a storyboard for how a project will unfold and builds accountability and transparency in the public-private development process. In addition to fundamental business terms, it provides a blueprint for conducting and managing the project, clearly addressing scope, budget, schedule, risk management, design, construction, oversight and approvals, close-out, regulatory compliance, change management, and claims management.
  3. Separate the property transaction. The transfer of property rights (purchase or lease terms) should be handled in a separate agreement. A development agreement can outline the timing and conditions for an eventual closing and attach the transaction agreement as an exhibit, but the business and legal terms of the two documents should be segregated. Intermingling development and conveyance terms threatens the efficacy of a development agreement as a project delivery vehicle and risks confusing how legal provisions, such as indemnities and remedies, should be applied for failed performance.
  4. Develop processes. Effective risk mitigation creates procedures to limit the impact of forecasted risks if they materialize during development. Successful public-private partnerships also demand a practical and collaborative approach to tracking accountability, continuous monitoring, and adaptation. The development teams executing the project should play a key role in preparing a development agreement and craft practicable processes to address risk and facilitate project implementation.
  5. Change management. Project scope, budget, and schedule changes are the most common causes of disputes in public-private partnerships. Development agreements should clearly define how changes to a project are processed, accounted for, and tracked.
  6. Check the law. State law may be more or less prescriptive in how public-private development agreements may be structured and what terms they must contain. Without specific statutes, other legal or constitutional limitations may apply. Check local law to understand how public-private development agreements may be used in your state.
  7. Keep it simple. A well-prepared development agreement for a complex project can get lengthy. At the same time, it is the document the development team will refer to during project implementation. Thus, it must be logically structured, clearly written, and pragmatic in its application.
  8. Build flexibility. No agreement can anticipate every problem that might arise during the development process. Effective development agreements provide for flexibility and collaborative problem-solving as a project unfolds. Creating a development operations committee, for example, allows issues to be identified and resolved collaboratively during development and is a valuable communication tool for public-private partnerships.
  9. Create a project management plan. Consider creating a separate project management plan that outlines more detailed processes and conditions to guide project implementation. While a management plan can be incorporated by reference into the development agreement, keeping it separate allows it to be a living document that helps build a genuinely collaborative public-private development partnership.

Innovate P3‘s program and project development approach helps clients consider and structure a public-private initiative’s critical business and policy elements long before the contract-drafting phase.