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.

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.