PRINT THIS STORY:

CHANGE TEXT SIZE:

Public/private pacts highlighted at Alliance meet

PHILADELPHIA — Public/private partnerships are becoming a new way for retail projects to get built, especially in urban areas. More often, nonprofit organizations, corporations and universities are getting involved as an investment opportunity and as a way to rejuvenate struggling areas within a city. These types of arrangements have blossomed in Philadelphia and were the subject of several discussions at ICSC’s Alliance conference here in October.

Partnerships with developers and non-profit entities have inherent drawbacks, but overall they are a very effective way to build in troubled areas. Working with these entities enables developers to get federal funding and grants for projects that would not otherwise qualify. Moreover, the local nonprofit groups often have a better insight into the character of a neighborhood than the regional or national developer has. These groups can also perform the tasks of assembling a site by buying the property necessary for a project and are often adept at public outreach that builds community support for the project.

The drawbacks of these arrangements is that many of these nonprofit groups have little experience with retail projects or with construction projects in general and may have less grasp of the importance of making a profit. Many times, the groups are run by boards of trustees and the decision-making process takes longer because of the greater number of people involved.

“It’s still a little bit of a blind date,” said Tina Brooks, executive director of the Local Initiatives Support Corp., Philadelphia. “It’s important for every party to know exactly what they want and exactly what they need. Make your partner someone that understands the turf you’re working on.”

The University of Pennsylvania in recent years has become very involved in real estate projects. In the last five years it has hired real estate developers to help it find projects in which to get involved.

“The university has taken the role of developer. It is securing financing and assuming risk. Penn is a solid institution, a $3.5 billion corporation,” said University of Pennsylvania Managing Director Thomas L. Lussenhop. “Fortunately it’s able to bring those resources to bear.”

Pennsylvania has invested heavily in the University City project in downtown Philadelphia, not far from the school’s campus. The more than 300,000-square-foot project represented an opportunity for the university to invest in the community, and it gave developers access to an untapped market.

“University City is Philadelphia’s college town. It represents a [Business Investment District] adapting to a different kind of environment,” said Paul Steinke, executive director of University City, the public/private entity formed to develop the project. “You had 45,000 workers, 35,000 students at Penn and a mixed-race, mixed-income neighborhood of 40,000 residents. These were major market segments that weren’t being served.”

“All parties need to make sure their goal is the same,” Rodgers McCauley Partner Margaret M. McCauley said. “To non-profit groups, sometimes ‘making money’ is a dirty word. The goal is to make as much profit as you possibly can so you need people who are doers, not obstacles. My experience with nonprofits is that they are not always steeped in reality.”

“You need patience and realism,” said Mark Morris, an attorney at Philadelphia law firm Fox, Rothschild, O’Brien & Frankel. “Retailers bring a standard approach to the table. For these projects [because of the government funds] you need to use union labor, need to comply to city ordinances and there are details to the project that retailers might not be familiar with.”

Rebuilding inner cities “is going to take more than rebuilding one or two buildings. It’s going to take major planning. It’s going to take business associations to identify sources of funding,” McCauley said. “Construction starts at [traditional malls] have been reduced. Main Streets and downtowns will be the growth vehicle for the next decade.”