Public-Private Partnerships Bridging The Gap For Affordable Housing, Major Education Projects

As the high cost of borrowing has created hurdles for projects across many asset classes to get built and deals to get done, some in commercial real estate are taking a closer look at ways a public-private partnership, or P3, can help sidestep some of those challenges. 

P3s have been able to speed up delivery of affordable units, said John Williams, president, chief investment officer and chief operating officer of Avanath Capital Management. 

“We were able to create 680 units of affordable housing in 90 days,” Williams told the audience at Bisnow’s Southern California Public-Private Partnerships event at the Hilton Los Angeles Culver City on July 30.

Avanath accomplished this feat through its purchase of the nearly 700-unit asset in Baldwin Village. The aging property was unofficially affordable housing, but it was also a likely target for purchase by an owner looking to make it market-rate, Williams said. 

“We partnered up with the Housing Authority of the City of Los Angeles, and they made a teeny investment into the property in order for us to get a regulatory agreement and restrict the rents,” Williams said. 

The deal involved putting income restrictions on the vast majority of the units, which will be reserved for households making 60% to 80% of the area median income. About 200 units are able to be rented at market rates. 

The firm was able to get an annual property tax abatement worth about $2M that was a critical element to making the deal pencil, Bisnow previously reported. To do a Low-Income Housing Tax Credit deal for the same number of units at the same price Avanath paid, roughly $220M, Williams estimated it would take about $100M worth of subsidies. 

“We did it for $2M a year,” Williams said. 

With housing affordability at the forefront for leaders locally and nationally, the project received wide attention from public entities looking to replicate Avanath’s path in their cities. 

Word of Avanath’s partnership with the housing authority in LA spread, and Avanath has since been “inundated” with calls from cities, including Phoenix and Nashville, which have city-owned properties that they want to make or keep affordable but through a partnership that can help complete the capital part of the equation, Williams said. 

The public sector has big ambitions and high demand from the populations they serve to deliver a variety of services, but the sector doesn’t always have the time or resources to execute, DLR Group International Development Services Leader Kristina Feller said. Public-private partnerships can help fill in the gaps, but they bring other benefits too. 

“They tend to be more efficient. They can do it smarter, better, faster,” said Feller, whose firm focuses on evaluating the business strategy and financial merits of these deals in the predesign phase.

“They have better benchmarks in terms of execution,” she said. “And certainly from the private sector standpoint, it's a great way to diversify your portfolio, your investments, your holdings, and you have a guarantor at the end of the day in terms of a public sector.” 

A project at San Diego State University looked to the private sector as partners not only for efficiency but also for expertise. The project, which encompasses 168 acres and has an anticipated completion timeline of 15 years for the full build-out, will be built by SDSU and a host of private partners, including AvalonBay Communities and Lincoln Property Co. It will include multifamily, retail, entertainment uses and green space. 

While the university decided to be the master developer of the project to maintain control over the long-term vision for the undertaking, it was more than happy to farm out aspects of the project such as the multifamily component to private partners, San Diego State University Vice President of Business and Financial Affairs Agnes Wong Nickerson said. 

The school will prep the site, install the infrastructure, secure entitlements and otherwise get it ready for private partners to come in and get to work. 

“We have a lot of experience going through the [environmental impact report] process,” Wong Nickerson said. “We also have access to low-cost capital … but we also understand that’s our expertise, our advantage. We are not developers.

“We don't know much about multifamily apartment construction or management, so it makes perfect sense to go out and find a private developer who is an expert.”