“With prices escalating, cities and municipal governments are looking for innovative ways to leverage their existing land assets to help fund their housing needs,” says Kevin Wayer, chief executive of JLL’s public sector and higher education business.
Speaking to P3 Bulletin following the launch of JLL’s report looking at four key trends in public sector real estate, Wayer said the firm is “extremely busy” supporting public sector authorities to find ways to finance new housing developments. As a result, he is bullish on the future for the market, and believes that the US may finally be heading for a critical mass of social infrastructure projects that will propel its P3 development to the next level.
Unlike in the transportation sector, where the P3 model has been firmly supported by federal structures, most notably TIFIA, the social sector has generally been developed at a local level. “There is still work to be done in terms of how the federal government interacts with state and local levels of government,” says Wayer. But even without this, local authorities and municipalities are starting to “batten down the hatches” to focus on developing their real estate.
P3 is not completely new to the housing sector, of course. The student accommodation market has been performing well for some time, with deals emerging across the country as university systems look to upgrades their facilities.
However, it has been relatively rare that the P3 concept has crossed over into the wider housing sector. Wayer believes that rising house prices and the need for municipalities to improve their affordable housing stock is changing all that.
“Dealflow is continuing to improve,” he says. “The market is in growth mode.”
This is backed up by recent developments in, say, New Orleans, where just this month a tender was issued for partners to develop both a commercial venture and a multi-family housing project on the same site.
There is also growing acceptance from public entities that any deal that needs to be done will have to be commercially sensible for a private developer. P3 models are being developed that allow private partners to make profits from deals while still providing the local region with the infrastructure that they need. As Wayer says, the developer market is sufficiently sophisticated today to have a proper dialogue with their public sector partners over what is needed in a given area – so not just housing, but other social infrastructure incorporating health and education facilities.
The development of this nascent social infrastructure market will, by its nature, be somewhat piecemeal. There is only so much that the federal government will want – and be able – to do when it comes to encouraging improvements in social facilities.
In that context, it is therefore important that the public sector does not close itself off from its neighbors. Municipalities and states will need to be in listening mode to ensure that they can pick the best examples of what has been done before, and find ways of delivering new social infrastructure that best fits their own communities. One size will not fit all here and nor should it. But as long as authorities are willing to pick up on some of the best examples and adapt for their own situations, 2019 could be the breakout year for social infrastructure P3s in the US.
It will also be up to private parties to demonstrate to those communities what private finance can offer, as well as – where possible – examples of how it has been done before. And they may not always have to be examples of existing affordable housing schemes. P3s have long been successful for military housing schemes, and have moved into the student housing sector. So affordable housing is the obvious next step. For developers, there will be few opportunities to fire up the cookie cutter and deliver the same products across a swathe of different locations, but they should be able to set the parameters within which a host of developments can be launched.