- Status of the P3 deals in the US: do we see IIJA influencing the use of P3s in more sectors
- Examining the use of progressive delivery structures or PDAs
- Analysis of the notable P3s/expected P3 deals
- Universities entering into P3s for their energy services
- NY's MTA potentially closing its first P3 deal
- Electric vehicle charging stations potentially a natural fit for P3s
Moderator (00:08):
All right, we are going to get started. Please for the next panel. It's our last panel before our fireside chat with the mayor and the city CFO. Let's please, let's get seated please. So we are looking at a P3S latest development of the P3s and I'm going to leave it to Jeremy to introduce our panelists.
Jeremy Ebie (00:31):
Afternoon everyone, instead of being in between you and drinks, we're in between you and the mayor. So we have 45 minutes to hear from our new and esteemed mayor of my hometown, Brandon Johnson. But in the meantime we'll talk about the landscape, the outlook for P3S this year and going out. And I've got a great panel here. First to my left immediately. Maybe you can go down the list, actually briefly introduce yourselves and then we'll go back into conversation. So please feel free to introduce yourself.
Morteza Farajian (01:05):
Sure. Morteza Farian, executive Director of Build America Bureau at the US Department of Transportation. And prior to that I was director of P3 office in Virginia, as well as Deputy Secretary of Transportation in Virginia for a short period of time.
Matthew Neuringer (01:22):
Matt Inger. In addition to the full-time job being co-chair of the conference, which is my highest esteemed honor, I'm a partner at the law firm or Carrington and Sutcliffe not in our public finance group, but I think the public finance group has adopted me as at least some type of a child that's under the group to a certain degree. I'm in our project finance group, which is energy and infrastructure. So I'm one of about 150 lawyers that works on everything from anaerobic digestion, P3 projects to design build for the city of New York. My practice spans representing developers, investors, lenders, and government agencies across the country in complex infrastructure projects.
Allison Larr (02:10):
Hi, I'm Alison la, I'm a director at Citigroup. I'm in our municipal municipal banking group's P3 specific group. So I'm part of an eight person team that works primarily with private activity bond issuers on public-private partnerships and other applications. We work on complex infrastructure projects as most P3S tend to be and we focus on projects across the country.
Earl Heffintrayer (02:37):
I'm Earl Heffintrayer. I'm a senior credit officer on Moody's project and infrastructure finance team. On our team we cover both municipal infrastructure but we also do private infrastructure and P3S.
Jeremy Ebie (02:49):
Appreciate it and I forgot to introduce myself. My name's Jeremy Ebie, founder CEO of Phoenix Infrastructure Group. We're an investor developer. We're based in Washington dc, focus on core infrastructure projects with public-private partnerships. Within that dynamic we're engaged across asset classes, streetlights, bridges, airport terminals across that range. So looking forward to great conversation with these experts here. I'm going to go first actually, Matt, we agreed to do a little bit of a, for those of us that are anointed or not as anointed on what's been the development, the major developments in the industry, the public-private partnership space, along with some feedback, what have been the trends in the past as we look to what's going to be in the future.
Matthew Neuringer (03:37):
Thanks Jeremy. I think before jumping in, I do think it's helpful just to level set for what is the public private partnership in the context of what we're talking about because I do think it's a bit of a loaded term in the US in particular and different jurisdictions, different owners may have different interpretations of what that means. So I think in the context of how we're thinking about it, it really is a partnership, right? It's not a privatization, it's not a situation where a public owner is completely alleviating and seeding all control of the asset to a developer. And often in most cases the public owner actually retains ownership of the public asset. And what it is, it involves a structure where you have a private developer who's typically some type of national international expert in delivering that particular asset, whether it be an airport, a road, a bridge or anything from on the energy side, battery storage or an rapid digestion otherwise.
(04:38)
And the developer is investing their equity. So Jeremy's investing their equity and putting that equity and risk and is project financing the assets so that the repayment of the debt and the equity comes solely from the performance of the particular project. So we call them sort of performance-based projects. So the general obligation of the public owner is not pledged for the repayment of the debt or the equity. The owner is only obligated to pay if it's an availability payment structure solely to the extent that the developer performs its obligations under the contract. So that's sort of the context that we're talking about. Generally there are various deviations of that, but we're not talking about privatizations and we're talking about really truly public private partnership type structures. The trends over the last year or so since we had this conversation at the conference in Washington has included an expansion of what the market has been focused on from core infrastructure, which historically was rail and airports and roads and bridges to a much broader definition of what's called non-core infrastructure.
(05:52)
That can include everything from EV charging to broadband while wireless transactions, energy as a service has been a big focus of ours. I'd say probably a third of the transactions I'm working on in one time now are energy as a service projects either for public utilities, for hospitals or for universities. We've seen some microgrid and battery storage P3 projects. Offshore wind now has been a major focus for ports around the country and how they're going to effectively create the necessary port infrastructure to support offshore wind development schools, social infrastructure more broadly, but schools in particular, whether it be student housing or even K through 12 schools, have also started to focus on alternative delivery. Everything from design build to P3. And then last year into this year we closed an interesting ADA compliance P3 project, which the MTA in New York closed earlier this year, chief financial close on, which effectively has a P3 developer that is installing and repairing 13 different stations and installing 36 different elevators and then maintaining those elevators over a 15 year period for the MTA to help the MTA rapidly become compliant with the ADA
Jeremy Ebie (07:18):
Of that project. I wanted to transition a little bit for our audience and maybe more TA you can provide some perspective on, Matt's kind of laid out the projects that have kind of been developed. How has representing the federal government representing Build America Bureau and running it essentially, how have you really seen the structure finance capabilities? How has that evolved over the past year and a half? It is worth noting that IIJA is been the IHAIRA have been the pivotal pieces. How has that played in further delivering some of the projects and really how can it play in more projects along with what Matt's kind of presented.
Morteza Farajian (08:04):
Thanks Jeremy for that question. First, let me ask, how many folks in the audience know about Build America Bureau?
Jeremy Ebie (08:14):
You're popular. Do they know this guy?
Morteza Farajian (08:16):
Very good. It looks like that should say.
Jeremy Ebie (08:18):
How many people know me.
Morteza Farajian (08:19):
Over the last four years especially of what we have done, which is being out there talking to folks, whether it's from private sector to public sector, states, municipalities, different authorities to make sure that they understand what we have at Build America Bureau and what we can provide has been successful. That has been our branding campaign, educational campaign that's going to continue. Going back to your question, what we provide at the bureau is financing. We have two loan programs, TFI and R. We have private activity bonds as well as a couple of grant programs that we'll just explain in a few seconds how we are using them. But we can both lend to public entities and private entities. So we are sitting in a very interesting position because for us it doesn't matter whether a project is P3 project or it's not P3, anyone who wants to leverage their resources, borrow against future revenues, get projects done faster, combine different phases and build them under one phase to save on a lot of unnecessary costs that usually come when you phase projects and then pay for mobilization, demobilization, some of those soft costs twice as well as construction cost escalation, we help them.
(09:36)
So that's a very unique situation to be probably about 10%, maybe 15, 20%. It varies. Of our projects are P3 projects. The majority of them are actually not P3 projects. There were borrowers who are borrowing directly on the public side at various levels, the state level, municipality level, county level. We have tried to educate people on the benefits of project finance in general that how they can think outside the box, how they can actually, instead of thinking about accounting and making sure that they have enough money, a hundred percent funding for a project to build it now to think about financing projects and how to evaluate different options that Matt was talking about it, whether it's P3 different variations of P3, if it's not P3, if it's publicly financed, how they can finance it themselves to build capacity for them.
(10:29)
Because one of the main issues is that we noticed that a lot of project sponsors, they have a lot of good accountants, they have a lot of good engineers, but they don't have people who understand financing. So some of the programs that IIJA a has given us that is directly helping us to build the capacity or the grants that we are giving out such as regional infrastructure accelerator grants that we have so far awarded 10 of them, one of them, he's here in Chicago, that this is the money that we give to different project sponsors to go out and hire full-time staff or consultants to build the capacity. And we are going to have more because we have another $24 million that they're going to announce soon as well as thriving communities. NOFO went out for that one yesterday. We have an innovative finance or asset concession technical assistance program and another one that is for rural and tribal communities all geared toward building that capacity dimension earlier.
(11:22)
So at the Bureau we're trying to build that capacity. We want project sponsors to be able to evaluate all options to look at alternative ways of getting projects done and we understand that that's the most important thing because all of these tools are in the toolbox and we want to make sure that people are aware of them, they're able to use them at the right place for the right project because these P3 deals, the P3 structures, there are a lot of good stories and there are a lot of bad stories about them. There are their success stories and failure stories. We want to make sure that people understand how and when it should be used or it should not be used. And that's really what we have been doing at the bureau trying to not only build a capacity, but once the capacity is built, be able to finance these projects because collectively we have between the two programs I mentioned over 110 billion in lending capacity and under our private activity bonds we had $30 billion that more than two third of it's already allocated and issued and some of it's still left. But that's basically what we're doing at Build America Here.
Jeremy Ebie (12:23):
Appreciate that Morteza, what I hear is flexibility and an ability to create capacity for projects that both the traditional financing community and the P3s community working together can really deliver projects quickly for the nation. I want to go to Allison and Matt if you have any input. How does this play out within transactions engaging with Morteza's program, with Build America Bureau within this context? How does it really play out when you really are engaging on an actual project financing?
Allison Larr (12:58):
Sure. So quickly, I'll just go back to what Matt was talking about. Just to clarify, P3s are a delivery mechanism to transfer risk from the public sector in delivering projects to the private sector. So they're not a uniform solution, but they are for specific projects where there's a lot of potential complex components that the public sector may want to transfer. So we don't think of P3s as a uniform solution and I think that the bureau has been very helpful and particularly since the IIJA has been passed over the past couple of years, we've seen some positive trends through the bureau that can help finance P3s. I'll just talk about three really quickly. So one is what them just mentioned, the expansion of the private activity bond ceiling for surface transportation projects that had been 15 billion and we were running up against the ceiling IIJA A raised it $30 billion.
(13:58)
So that gives some relief. It allows larger allocations to be given to projects so that they can benefit from that lower borrowing cost product. Over the past couple of years, we've also seen innovative uses of service transportation paths. For example, in 2021 City worked on the New York state through authority service areas project, which is the redevelopment of all of the service areas along the throughway disqualified for private activity bonds as the first of its kind, we were able to work very closely with the bureau and identify ways that the program could be extended to this project. There was also the DC streetlights project, which also was financed in part using private activity bonds. So I think that these two precedent transactions kind of set the stage, what we might see in the future for applications for ps, which could be EV charging infrastructure and who knows, it's up to us to be creative and to work with the bureau to use this tool.
(15:05)
The IIGA also expanded private activity bond eligibility categories using state volume cap. So broadband projects are now eligible for ps. Matt and I were talking earlier, it's kind of a nuanced legislation. We haven't seen an application of that yet, but it is available and we think that that can hopefully spur investment. That also benefits from a four to one volume cap allocation to par allowed to be no par to volume cap issuance. So you're able to use four times the par as the volume cap that you get, which is helpful for states where volume cap is a scarce resource. Finally, I think that IIJA expansion of the TIFIA program to include airports is very helpful. Hopefully we'll see some airports projects begin to be financed with that. I think in the public-private partnership space, investors have become very comfortable with financing projects with PABs alongside a TIFIA tranche.
(16:09)
We've seen that in numerous surface transportation transactions. Northern Express I 66, SH 288, I 77, and also in WIFA, which is the water side of TIFIA. They're different programs but they're very similar. There was a P3 finance in part using WIFIA alone. So I think that these are some of the trends that we see. And just one note on what Morteza said at the end there about grants, investors don't view a grant contribution as true equity. They like to see sponsors with skin in the game. And Earl is nodding as it's very important to the credit analysis to make sure that there is a sponsor that is, and this is where P3S can be beneficial because if sponsors have an equity stake, they must deliver that project. They must operate that project in order to get the returns on the equity that they have invested in that. So it's their loss if they're not able to do that and investors do not view a grant from the government as having the same sort of skin in the game as a sponsor putting up its own capital to finance the project.
Jeremy Ebie (17:19):
Yeah, no, I think you gave a great segue to Earl actually. I am curious to your view as we're talking about all this development movement, how from a credit analysis standpoint, you look at these projects now, individual projects and the space as a whole, what are you saying?
Earl Heffintrayer (17:37):
Well, we see it as a space as Matt and everyone has already talked through. That's greatly diversifying. So whereas maybe a decade ago we were looking at toll road Monetization's or just out risk demand risk projects, then moving into the availability payment for the delivery of civil infrastructure. We're now just seeing that much broader asset class, so many more deals but smaller deals. And with that comes a couple of unique challenges as for instance, as you move into the delivery of central utility plants or district energy, those sometimes can be for a much smaller entity that's going to come with a weaker credit quality not coming from the state level. So that starts to be a consideration. But the other thing that we see from a credit point of view is that as the market has gotten more comfortable, we do see a weakening of structures When it was a new asset class, we would see very arcane issues to those on the outside, but equity had to bring those letters of credit.
(18:36)
If they took out way a cash funded debt service reserve, it had to go to equity. Now we're seeing that an lc to the project could satisfy that requirement, which again is at the margin. But those are some structural issues going back to some of the other items. Thank you Allison for bringing that up. We've heard the nonprofit structure. I always get the letters and numbers mixed up so I'm not going to embarrass myself by getting it wrong again. But it brings up a very good point when the project goes wrong, who's actually has equity standing there on the line to get that done? I think we had a round table with issuers and they said they were in one and when that project doesn't work, who do I call? There's no one there. And so I think as we sort of look forward to what we expect to see, again just more, we're also seeing in the broader infrastructure space more and more things that would've been considered real estate now finding its way into the infrastructure portfolio.
(19:37)
So that's things like digital infrastructure, data centers are increasingly coming over into our space. We recently earlier, my time is off, I believe it was late last year, earlier this year, we rated a project financing that funded half of a new intel fabrication facility in Arizona. Again, seeing new innovation come into our space and then as we take a look at so many things that have already been repeated through EV charging, again, most likely ending up in the enterprise space, but as it comes up could go into the P3 or project financing space. And then while we haven't talked a lot about, but the push for renewable energies, LNGRNG and hydrogen or other opportunities going forward?
Jeremy Ebie (20:25):
Much appreciated. Matt, I'm kind of looking at you when we also talk about we were going to touch base on procurement structures and kind of comparing the concept, and this may be a bit foreign to our group, maybe you kind of want to walk through a little bit when we talk about PDAs and those kinds of ways that projects get delivered through and to, is there some perspective you want to talk about as far as how that's evolving given some of the changes in what we consider infrastructure, the participants build America?
Matthew Neuringer (20:57):
Yeah, absolutely. Thanks for the question and I think the not-for-profit structure was mentioned. I just wanted touch just on one of their economic trend is obviously difference in cost of capital between taxable and tax exempt debt in the last year has definitely caused a lot of our clients in P3 transactions to think very creatively around how to interject tax exempt financing into these transactions even where there isn't particular exempt facility allocation or exempt facility category. And so that is I think an opportunity for the municipal finance community to really partner with the P3 industry to think creatively around how do we work together to make developers and collectively with the public sponsor owners make these deals pencil out. And so that's a trend that right now it seems like if you could figure out how to do it and your competitors can't, that could be a game changer if you're in a competitive bid environment.
(21:53)
So that's definitely been a trend over the last 12 months. So on the procurement side, I think we have sort of differing potential, some differing opinions to a certain degree around the value the PDA structure on this panel. So we'll get into some of that. But there has been a trend over the last, I'd say two years and it's definitely continued to expand the last 12 months to pre-development agreements, also known as exclusive negotiation agreements, a lot of different acronyms in the P3 market for some reason. So ENA or PDA. And what it is is it's intended to be a more progressive, some people may have heard of progressive design build, some people cringe when I call it when I use this to call it a progressive P3, but that's effectively what the concept is. You're hiring and engaging at the procurement level with a developer primarily based on their qualifications in part based on somewhat of a technical solution, but it's more of an indicative technical solution.
(22:57)
And there isn't any hard date, certain lump sum fixed price, fully committed proposal at the end of the procurement. But instead what you're getting is sort of their pricing for their equity and their pricing for their overhead and profit and margin on the construction side. So you take your indicative technical proposal, which might come with a bit of a schematic design, you'll take that pricing and you'll take their overall qualification. Are they good guys, are they qualified, are they good women? And then based on that make a selection. And then from there you enter into the pre-development agreement. And the idea of it is that you work through all of the very difficult complex issues that are really challenging to do in a competitive procurement environment, one-on-one with that P3 developer as Azure partner in the pre-development phase. And so all of the contingency and risks that might otherwise have been priced in to a fixed price competitive scenario, let's say for hazardous materials or geotechnical conditions or utility interface or third party coordination, the intent is all of that is supposed to get worked out under the six to nine to 12 month or in the case of the Sepulveda project four year PDA period.
(24:10)
And then at the end of it you get your fixed price date, certain lump sum, fully committed proposal, which has fully committed financing behind it. And then at that point the public owner has the decision as to whether or not to move forward with the project with that developer or potentially off-ramp. And so all along the way under the PDA, there are off-ramps so that if they're not meeting certain criteria and certain benchmarks both on their design development as well as cost and all of the costing is done on a fully open book transparent basis. So the idea is every dollar, every price, every subcontractor, every supplier is fully transparent as well as any contingency. The idea is to completely eliminate unnecessary contingencies in the structure. And then at the end of it, if you have the time and you aren't under tremendous political pressure, which is the key, you get the benefit of the structure.
(25:03)
We ended up closing a deal last year under a lot of political pressure and as a result we had more of an abridged PDA period. And so that structure has been primarily used for social infrastructure. So vertical buildings, so like the Long Beach Civic Center, long Beach Courthouse are good examples of shining star P3S that have been delivered as P3S been delivered under PDAs. But the project last year was actually a surface transportation roads projects. It was the first surface transportation roads project for six major bridges delivered under the PDA model in the us.
Jeremy Ebie (25:45):
Yep, appreciate it. Ate it, saw a little bit of chagrin.
Morteza Farajian (25:50):
Well, as I said, it's good to have all the tools in the toolbox, but we got to get practical and look at the real outcomes of different tools for different projects. In my view, that could be another tool in the toolbox. It may work in certain cases it will not work. In other cases, if an availability payment, it's it's likely more likely that it works if it's not availability payment project, if it's revenue risk project in my view, it's less likely that it's going to work. For me, the most important thing is competition. I love competition. I love transparency. Over the seven years that I was in Virginia running the P3 office, that was the most important thing for us. I 66 express lanes, which opened to traffic December of last year is a good example how we went through a competitive procurement process, not maintaining competition in a P3 procurement among P3 bidders, but we also developed a fully fleshed out public finance option that we were ready to go ahead and issue our bonds.
(27:02)
If P3 procurement would've not given us a better deal compared to that publicly financed option. And when I say fully fleshed, we paid for investment grade traffic and revenue. We talked to rating agencies, got ratings on it, we hired a different financial advisor to develop the model for us. Basically we were ready that if we wanted to issue those bonds within two months we were ready to deal with and close that deal ourself. And because of that, I think we got a really good deal I 66, it's an amazing procurement that it's on time, on budget built. Everything about that project went exactly according to the plans and the bid that we got compared to the public finance option that we could do on our own. The difference was about $1.2 billion and we can go on and talk about what created that difference. And on the financing side, definitely more expensive, but because of the competitive nature that procurement had, because of all the good work that went into the procurement in terms of alternative technical concepts, in terms of innovative financial concepts, that in parallel to alternative technical concepts we were developing with the bidders and the flexibility that we were able to provide when we were managing the procurement, we got a lot of ideas that were really innovative, adding more ramps, providing better connectivity to the facility, just enhancing the design of the facility that we could have not got it under any other model because we had an equity partner that the bread and butter of their business is running tow roads and they really used that expertise, that experience to sit down and come up with a design that no design firm could come up with for us as a public entity.
(28:50)
And under that scenario, that P3 model worked in my view because of the competitive nature of the procurement as one of the elements. But I'm not saying that that model is going to work everywhere. The progressive P3 model, it may work in certain cases, it did not work on a similar project to I 66 on the other side of river and in Maryland. So they had to reverse their gears and now look at public finance option. But I think the most important thing is to be able to evaluate all options, not be biased, look at pros and cons, look at the risks, and that's basically the value for money analysis that needs to be done, which we are in the process of issuing guidelines for it because I j a has asked bureau to provide guidance on that doesn't matter whether projects are publicly financed or financed through P3, as long as they're over $500 million, they need to do value for money analysis in order to be eligible to borrow from us.
Jeremy Ebie (29:47):
Great. Appreciate that. Value for money is definitely, and the risk transfer is definitely something the P3S provide a whole other world of possibilities and benefits. But I guess what you're saying, I wanted to ask two questions. I think first I was going to go just each ask you individually, I'm going to go the first question before we go to questions for the audience, what's something you expect to see in the industry in the coming year? I'm going to start with Earl.
Earl Heffintrayer (30:14):
Three space for the coming year, even though we spent so much time talking about toll roads being in the past, it's the year of the toll road again. So as we look forward's, the potential there's the Puerto Rico roads are backup or actually up for monetization. There's the potential for the I 10 Cal CasQ bridge and what's the other one that I'm forgetting? Oh, and also the GA 400. So we're actually have the potential to see those demand risk roads come back in. I mean just to go back, we also expect to see, we expect that the PDAs will continue. I would just like to add, with all respect to Morteza, we view those to be a very, those are an appropriate risk mitigation as we've seen because universally almost every P3 that's come out over the last decade has been late and almost universally it's been some relief event that's gone back in the government has had to take. Anyway, Allison talked about the WFI project. I don't know how many people are looking at that project. They're now 286 days late because of the dealing with railroads and they had to reopen their 404 permit. Both things that maybe had designed, taken a little bit more would've gone through. So we expect those two things in the market. And then again, just more of the central utility plans.
Jeremy Ebie (31:38):
Allison, please.
Allison Larr (31:40):
Yeah, I tend to agree and I mean it's not a secret that the market has been weaker in the past 18 months or so. So I think that as Earl mentioned, some of those contractual arrangements, investors have allowed them to get weaker over time because these projects are typically low investment grade and represent an opportunity for yield and okay, I'll accept this risk. But I think that the ball is, the pendulum is swung to the investors side of things and they're able to demand tighter structured projects. So I think that that might be a trend that we start to see going forward is maybe some of the termination provisions are different or some of the reserve requirements and liquidity requirements are more in investor's favor than on the sponsor side of things. So I think that that's a trend that we may start to see and we've started to see away from P3S just in other sorts of transactions on the PDA front, I mean bond investors want to have comfort that their debt service is going to be paid.
(32:48)
And I think that A PDA is one way for, as Israel mentioned, for the sponsor and the public entity to work together to make sure that they have a project that can be delivered under the parameters that have been set under the contracts. When I'm thinking about A PDA as a banker, I think that it gives me the opportunity to review terms and make sure that they're consistent with what the market would accept before they're fully baked. And so that's a positive and it also could potentially be an opportunity for bond insurers to look at projects and determine if that's something that they would look at or if there are a couple things that need to be tweaked, it could give them the opportunity to opine on that. So I think that PDAs offer a little bit more flexibility in terms of offering improvements to transactions that could not be on the table if you don't have that period of back and forth and negotiation. So I dunno, I think that those are some general trends that we see and we will we'll look and see if my crystal ball is right.
Jeremy Ebie (33:53):
Matt, what do you expect to see? Appreciate it Allison.
Matthew Neuringer (33:55):
So like I mentioned before, I think energy as a service, particularly in the healthcare space is going to be very interesting over the next 12 months. So a number of hospitals systems across the country have signed up to something called the Healthcare Action Works. And that pledge under Healthcare Action works requires them to meet certain greenhouse gas emissions reduction targets over the next 10, 20, 30 years, which is not something hospitals had ever been required to do, unlike municipalities and states which have all signed up either legislatively or otherwise through executive order. So as a result, we're starting to see a lot of hospitals look more seriously at energy as a service. And so that should be an area where both on the public hospital and the private hospital side, there's an opportunity for private industry to coordinate with them to allow hospitals to really focus on core mission and outsource to the private sector and offload risk to the private sector and seek innovation from the private sector on how to design, build, finance, operate and maintain their district energy systems and also completely retrofit and recalibrate their existing facilities.
(35:07)
So what we see in these transactions is usually there's potentially a bit of a renewable energy component. There's some type of energy conservation measure component where they're going in and doing a full audit of a building or campus and doing restoration and new improvements. And then the other element is the century utility plant being either transferred or operations maintenance being transferred to the developer. So sort of three components all wrapped into one transaction with one developer. The other is, I think on EV charging and anything really where there is an IRA component because where developers can add a lot of value for public owners is now with the direct pay elements available under the IRA is private developers can now partner with public sector and with non-for-profits and create value for them under IRA tax credits that just didn't exist before the IRA. And so things like the biogas conversion P3 project that's out by right now the city of San Francisco and their POC as well as microgrids and battery storage, all of those types of projects, we have a number of clients that are coming to us. How do we partner with the private sector to try to unlock opportunities to gain access to both these tax credits as well as their expertise over the long term. Love it.
Morteza Farajian (36:31):
A couple of things that they see. It was mentioned that now we can finance airport projects. So that's a program we are working on it and then we are developing a pipeline for it. But another thing that is happening at the bureau is we see more and more CDs coming to us and talking to us, which is kind of new for us. We had CDs interest in our programs before, but the one thing we are doing with them is to discuss a bundle of projects within that CD that we can help them with. There was an announcement, I don't know if you guys saw it or not, earlier this year in February I believe I signed an emerging project agreement with mayor of Austin for a package of 25 billion worth of projects that they're trying to develop over the next couple of years, which includes improvements to airport transit.
(37:14)
There is a cap that they want to put on top of one of the highways and transit-oriented development as well as a new operation center and I want to call it integrated operation center, not just a traffic operation center. We are in discussion with other CDs and similar packages that hopefully if they get to the point that we can execute those agreements and announce them, we will hear about them. That's one thing. But on the TOD side, that's something relatively new for us. We have been able to create a very good pipeline, especially over the last year or so. There are about 10 projects so far that we call them projects in our cohort. One that we have made eligibility determination on them. They're going through the process together. I believe it's about $14 billion worth of projects in the TOD pipeline for us.
(38:02)
We haven't closed a deal yet, but I think the first one is going to close probably early next year if everything works perfectly. It's going to be for the project in city of Mount Vernon, Washington State, which is an interesting project. And that's the other thing, the segue that I wanted to talk about that we see more and more people project sponsors combining different elements, different types of projects under one project, which is very interesting. This project for example, in City of Mount Vernon is a massive parking garage that is meant to take away the parking space and the streets so people can go and park in this garage and the space can become available for businesses in the city to put outside dining space and better use of the space within the city. They're putting charging stations inside this parking garage, they're building a new library, a civic center. So you can see that how they're creating a multimodal facility, a multi-use facility, that they can finance it through us and we see that trend. We see how people are, for example, combining bus maintenance facilities for electric buses and then building something on top of it, whether it's public housing or some other sort of development. That's very exciting to see that how people are getting creative and combining different types of assets in one development.
Jeremy Ebie (39:21):
That's great. Marta, that kind of segues some conversations we've had into the second question I was going to ask you and I'll answer my thought of it first, which is what do you want to see the next year? I want to see more transit oriented development projects with housing workforce or affordable housing combined into those projects. I think that's one way to do what you're talking about hitting several birds with that one stone. And I hope to see more of those. I've talked about one in particular, but that's this kind of asset class that I hope to see in cities and even suburban areas across the country because my thought is you're hitting a lot of birds at one stone. You're able to access TIA if you can or you're able to access RIF if you can. You're providing, if you can be providing affordable or workforce housing, we know that's an issue in this country and to provide some optionality for transportation with transit. I'm going to go back to Earl to ask you something you'd like to see in the industry. It doesn't have to be a project or asset class, but something you'd like to see in this space across the board in the next year, two years.
Earl Heffintrayer (40:26):
So as a rating agency person, I got to say we don't want anything we just opine. So I'm going
Jeremy Ebie (40:32):
Take opportunity. I'm sorry I to lay that off. So I'm
Earl Heffintrayer (40:34):
Going to take an opportunity to say something that I forgot to earlier. One other thing to look out for this year is given the higher cost of capital, we are seeing structures with more short-term debt and more bullets which start to introduce more of a corporate type structure. So I would just put that back on and then yeah, so I'll turn it over to Allison.
Allison Larr (40:53):
I have a lot of wishes. It's your wishlist. I don't know. I mean I think that the pipeline is pretty healthy. There was a lot of buildup after covid and it seems like there was a lot of dry powder built up. So I would just like to see the pipeline to continue growing, but at the same time I would like to see projects under development set a good precedent and a good example for this space to show the P3S work well and for projects to continue coming in on time and on or under budget. So just positive trends in the industry.
Matthew Neuringer (41:27):
Yeah, I think I'll piggyback on that because I don't don't necessarily have any particular pet asset class. I've got the benefit of being able to work on a lot of different complex assets around the country. But what I'd like to see, because this is one of the general reasons why I think a lot of municipalities and state agencies are hesitant to jump into alternative delivery is the time it takes to structure the deals, what they view as unnecessary complexity and really a mystical unknown around what you're getting into from the get-go. What I'd like to see over the next year, and this is something we're working on through the association for the improvement of American infrastructure ai. AI as well as in concert with the bureau, is a streamlining of how and how can we make these transactions move faster. How can we decrease the complexity and how can we create more standardization in the market around areas where there's commonality across asset classes and across jurisdictions so that we're not reinventing the wheel on every transaction.
(42:37)
Oftentimes there's extraordinary amounts of effort where people are renegotiating the definition of change in law and force majeure and compensable relief event and you name it on every single deal. And it's just totally unnecessary. And it's not in the interest of moving projects forward, it's not in the interest of the industry. And I think to bring in the traditional infrastructure delivery space, which includes the Muni finance space into being partners with the P3 industry, it's going to require some type of standardization that's going to make these transactions move faster and more smoothly because that is the way to directly address the most significant risk on these projects, which is political risk.
Morteza Farajian (43:23):
And I agree with Matt, I think simplicity in these transactions is the key. Sometimes we just make it too complicated and people get scared and they just walk away. One of the things that we are trying to build America Bureau is actually to simplify things. It's not all about very complicated toll road transactions with 50 year term of P3 concession agreement, but it could be simpler than that. We just closed a loan for Oklahoma dot, that they're just bundling a series of projects that they have to just make improvements to the shoulder lane of rural roads that they have that were designed many, many years ago and it's not up to the standards today. And because of that, they have a lot of fatalities and a lot of accidents. The legislator is giving them money to fix it over 13 years, but instead of doing that, they're leveraging that money through us and getting everything fixed over three years, saving 29% on project costs, including after you include financing costs.
(44:23)
They're still saving 29%. And then of course on the public benefit side, they save 50% of the accidents that would've occurred over the next couple of years by expediting delivery of these projects. Those are the type of examples that we want to talk about that why people are not using project financing, why people are not leveraging their resources to get good projects built today. Save on a lot of unnecessary expenses and then deliver those benefits faster and giving them the tools that they need to deal with creating the capacity for them at local level to deal with. And that's literally what we are doing at Build America Bureau. And we have created Build America Center, which some of you might be familiar with that has a lot of information and encourage you to work with them as well. It's a combination of five universities that are working for us.
(45:12)
We are funding them to provide that educational effort that I'm talking about. They have workshops, they have seminars, and I specifically have made it clear to them that I don't want academic research, I come from academic background, they got my PhD, but I'm a practical guy. I want to make sure that everything that this Build America Center does is going to actually benefit real projects. And that's what we are doing. A lot of real cases studies that we want to get the word out and communicate success stories to folks. And I think that's what we all need to do in this industry. We need to communicate those success stories. We need to simplify, we need to give them the resources they need to hopefully see that this market is going to go.
Jeremy Ebie (45:48):
Yeah, that's great. Appreciate those notes. We've got about three minutes for any questions from the group, but I think we're putting pretty well on time. Don't know if there's a microphone out there or any questions. I can't see anything, any questions at all? Can you see anything? I can't see anything.
Morteza Farajian (46:15):
I think someone wanted to ask where the drinks are going?
Jeremy Ebie (46:17):
To be served. Yeah, I know they're waiting for the mayor. It's understandable. Okay, well in that case, I want to thank my colleagues here for really laying out some things and having a great conversation with you all. Hope this was very informative for the group and I can say that for sure. Hope that you see that there are a lot of tools in the toolbox, a lot of opportunities to really build capacity for all of us in the space of delivering infrastructure to this country. Then this is a great time to do it. So with that, thank you all and let's wait for the mayor and drinks. Thank you.