Public-Private Partnership

Within the California State University (CSU) system, the definition for public-private partnerships has been expanded and sometimes retitled to real property partnerships to encompass a partnership with a public or non-profit entity or to involve campus auxiliary organizations. A Public-Private Partnership (P3) may serve as an alternative delivery method to procure and finance real property development projects sponsored by the CSU or an auxiliary.

Public-private and public-public partnerships can be structured in a number of ways, but the typical structure calls for a campus or auxiliary to lease a portion of its land to a third-party development partner who then develops a project on the land, assuming development, financing, construction, and operating risk on the project.

The campus or auxiliary is expected to confer with the assistant vice chancellor of Financing, Treasury & Risk Management and/or the assistant vice chancellor of Capital Planning, Design and Construction about a potential public-private partnership project early in the concept process, and no later than the early stage of any feasibility study. Because of the commitment of the CSU or auxiliary organization land to third parties for long periods of time and because of the risks involved, public-private or public-public partnerships are usually approved by the CSU Board of Trustees in a two-step process consistent with board policy.

Reasons to Choose a Public-Private Partnership

Need for additional housing or academic buildings
Deferred maintenance in campus facilities
Allows access to alternative private financing (off the CSU's balance sheet)
No monetary investment required by the CSU or auxiliary organizations, with project costs paid by the partner for revenue-generating projects such as housing
Transfer of risk for initial costs, budget, financing and schedule
Leverages developer expertise and efficiencies in development, management and operations
Unlocks land value and monetizes underutilized land via ground lease
Financial return in the form of ground lease revenue, net cash flow participation
Achieves facility needs while limiting financial and operational risk

Reasons Not to Choose a Public-Private Partnership

Cheaper cost of capital available with CSU-arranged financing
Additional project costs to CSU or auxiliary organizations on P3 projects for real estate financial advisory and outside legal support
Possible adverse impact on existing housing operations
Off balance sheet, but still on credit
Reversion of risk to the CSU in the event of the project's failure
Non-revenue-generating projects such as classrooms or infrastructure will require annual payment to the private partner
Concerns about control of land by a third party over a long period of time

Stage 1: Concept

When starting a Public-Private Partnership, the first goal is to define the project at a broad level. In this stage, the campus or auxiliary organization (AO) and consultants will research whether the project is feasible and if it should be undertaken.

Stage 2: LDRC Concept Review

Next, the campus or AO will present the concept and related information to the Land Development Review Committee (LDRC) in advance of the campus and/or AO seeking concept approval from the Board of Trustees.

Stage 3: Board of Trustees Concept Approval

The Board of Trustees' approval of the project concept may authorize the campus or AO to release the Request for Qualifications (RFQ), Request for Proposal (RFP) and other actions.

Stage 4: Due Diligence

In this stage, the campus or AO and consultants will evaluate statements of qualifications and proposals received, select a developer, negotiate agreements with the developer, and CEQA will be initiated by the developer.

Stage 5: LDRC Final Review

The campus or AO will present the final development project to the LDRC before the campus and/or AO seeking final approval from the Board of Trustees.

Stage 6: Board of Trustees Approval

Actions by the Trustees may include: approval of CEQA documentation; review of agreement terms and conditions negotiated by the campus or AO; or delegation of authority to execute agreements necessary to implement the development project.

Stage 7: Project Implementation

A real property partnership project located on CSU property shall comply with CSU plan review approval and building code enforcement. A real property partnership project, including those administered by an AO, located on CSU property is also subject to CSU contract law.