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Municipalities and P3: Diving Into the Innovative Economy

Municipalities and P3: Diving Into the Innovative Economy 960 540 DMR Architects

By Charles H. Sarlo, Esq.

Municipalities have the ability to be innovative and creative in addressing their infrastructure capital needs as a result of the newly enacted Public Private Partnership Law (PPP or P3), which became effective February 10 (L.2018, c.90, s.1; N.J.S.A. 40A:11 -52, et seq.). In order to ensure that a municipality’s economic decisions are financially prudent, the P3 law has built-in safeguards in the form of competitive solicitation, transparency in the form of public hearings, and checks and balances in the form of the State Treasurer making specific findings in connection with the approval of PPP projects.

The simplest definition of a Public Private Partnership is a contractual arrangement between a public entity and a private entity that allows for greater private sector participation in the delivery and financing of capital projects with the objective of shifting risk to the private sector. The P3 law allows for a design-build-finance-operate-maintain methodology to deliver capital projects and is an alternative project delivery method to the traditional procurement pursuant to the Local Public Contracts Law (LPCL), which is recognized as a design-bid-build approach.

Broad applicability

The P3’s statutory applicability in New Jersey is broad, as it allows the P3 project delivery model to be used for any building, local or county road, vertical structure, or facility constructed or acquired by a local government unit (defined to not only be municipalities, but also other public entities that are subject to the LPCL or Local Redevelopment and Housing Law) to operate local government functions, including any infrastructure or facility used or to be used by the public or in support of a public purpose or activity.

Today, the private sector’s innovative intellect and financial vigor can craft and implement proposed solutions to a municipality’s infrastructure needs. The theme of private sector innovative intellect is front and center in New Jersey’s P3 law, which allows the private sector to submit an unsolicited proposal in the form of a “project playbook” that includes certain statutory requirements.

Should the municipality elect to proceed, it must seek competitive proposals via a public procurement process that must also meet the minimum statutory requirements that that satisfy the same basic purpose and need of the unsolicited proposal. In the alternative, the municipality can issue a public procurement request-for-qualifications. Upon a determination of the qualified respondents, based, in part, on minimum standards to be promulgated by the State Treasurer, the municipality is required to issue a request for proposals.

Regardless of whether the unsolicited proposal or the solicited proposal pathway is applied, the municipality would rank the proposals received in order of preference based, in part, on minimum standards to be promulgated by the State Treasurer. Thereafter, the municipality is required to make specific determinations of the top-ranked proposals and hold a public hearing at which the specific findings must be made in order to find that the project is in the best interest of the public.

Subsequent to the public hearing, the municipality is required to submit a P3 application to the State Treasurer for review and approval. The statute requires the submission of specific items, including: full description of the proposed P3 agreement, a full description of the project, description of any agreement for the lease of a revenue-producing facility related to the project, the estimated costs and financial documentation for the project showing the underlying financial models and assumptions that determined the estimated costs, timetable for project completion, evidence of the public benefit in advancing the project as a P3, and the municipality’s findings during it’s proposal review and the public hearing.

For municipal projects, the State Treasurer, in consultation with the New Jersey Economic Development Authority (NJEDA) and the Department of Community Affairs (DCA), is statutorily charged with approving P3 applications. In order to validate that the proposed P3 project is in the best interest of the public, the State Treasurer must make specific findings for a P3 project approval.

If the P3 project is approved, the municipality can then enter into a P3 agreement with the private sector, which needs to include certain provisions, such as a completion date guarantee, liquidated damages, maximum rate of return to private entity, and a provision for the distribution of excess earnings to the local government or the private party for debt reduction, a project labor agreement, performance and payment bonds, prevailing wage, and the establishment of a construction account with a third-party financial institution to act as a collateral agent.

As with any newly enacted law, one can certainly anticipate litigation involving the P3 law in which a party seeks to clarify the intent of certain provisions, reconcile inconsistencies or challenge the law’s applicability.

Understandably, the initial inquiry by a public official will invariably be “Why?”

Why chose to undertake a capital infrastructure project on a path that appears to be complex, burdensome, and untested–while it may also be assumed to be more costly and potentially fraught with a litigation challenge–rather than the time-tested procurement under the Local Publics Contract Law. For each initial negative reaction, P3 advocates and P3 case studies can illustrate a positive counter. Generally, it has been proven that there is a role for the private sector to foster solutions for public sector challenges. A well-designed P3 is intended to be performance-based and outcome-focused with a risk-sharing approach where asset performance is optimized for the long term.

Qualifying considerations

Notwithstanding that some who have had firsthand experience undertaking a capital project under the LPCL would certainly express concerns that they experienced regarding project cost overruns, claims, and missed project completion dates, it should be recognized that the P3 law should not be considered a blanket replacement to capital project procurement under the LPCL, as not every project is appropriate for a P3 arrangement.

National P3 players will advise that a project cost of $50 million is the minimum project threshold for a P3 project. The New Jersey P3 law prohibits the bundling of projects (i.e., two or more projects considered as one for a P3 arrangement). However, there are many infrastructure needs of municipalities and other local government units with project costs less than $50 million.

Notwithstanding this industry threshold, it is fully expected and anticipated that the New Jersey local know-how of the private sector will adeptly be able propose P3 arrangements to the public sector pursuant to the P3 law, for many of a municipality’s capital infrastructure projects regardless of project size. The public sector should embrace the imagination of the private sector as related to its capital infrastructure needs and base its procurement decisions on sound economic analysis, which supports beneficial fiscal and social impacts as required by the P3 law.

The dawn of Public-Private-Partnerships in New Jersey is now. As may be applicable, it would certainly be prudent for public officials, who are charged with balancing the needs for public funds while developing, upgrading or replacing public infrastructure, to certainly consider the Public-Private-Partnership business model as an alternative procurement process, notwithstanding its embryonic stage.

This article originally appeared in New Jersey Municipalities.

Hackensack: A Redevelopment

Hackensack: A Redevelopment 960 540 DMR Architects

by Francis Reiner, PP, LLA

As densely populated as New Jersey is and as much development as we have seen over the last decade, there remain many once thriving communities struggling to regain relevance. Like many of these proud communities, Hackensack’s fate was sealed back in the 1970’s, with the advent of the malls and proliferation of land use policies that promoted isolated land uses where people would work in one location and live another. Previously esteemed communities like Hackensack slowly died from the inside. Left with little to no residential, high vacancy rates and low rents, these suburban downtown centers become desolate, dangerous areas with little opportunity for revitalization. Even today, there are many communities struggling to create a strategy to recover their vitality without having to compromise their vision and values.

It’s been a long road for Hackensack. Understanding all of the layers, all of the details, all of the pieces that have to be considered from the very start through every decision that is made every day to support the goals, objectives and vision for the City can be daunting. Most people would have given up on the thought that one day Hackensack would have another day in the sun and even with dozens of projects underway, there are still doubters. Even communities who can correctly articulate a strategy that takes into account the complexities of a changing demographic society looking to live and work in ways that no previous generations considered are lost for lack of the most essential element to revitalization: a plan.

But unlike many communities, Hackensack took this first step in redevelopment—which is the hardest to take. A plan may sound simple, and at the beginning it is: create a vision that represents the goals and objectives of the community. Then, identify public initiatives, plans, zoning, projects necessary to encourage the maximum amount of private investments and it quickly becomes more complicated. The plan also needs to maximize private investments in an area with numerous property owners, failing infrastructure, with poor circulation, that lacks parking and provides little to no entertainment without the use of condemnation within an existing and constrained 2% municipal budget. Each decision has to be weighed and measured to understand the financial implications while continuing to seek what is best for both its existing and future residents.

The key is to create a plan that promotes private redevelopment, increases tax revenue and enhances the community in a manner that meets the goals and objectives of the residents that is realistic for both the municipality and for the development community. Too many plans are written that are either not practically realistic or are not financially feasible. This key aspect is one of the most important differences from a plan that sits on a shelf, to a project that gets built. For municipalities, the professionals that represent you and their knowledge of development, costs and construction is a critical component to the creation of a plan.

For Hackensack, this meant creating zoning that encouraged land assemblages by creating a two tiered as of right zoning within the downtown. For small individual properties, a non-catalyst zone was created, which promoted smaller scaled redevelopment with appropriate parking ratios. However, for developers that assembled multiple properties that fronted on Main Street (Min. 200’) a catalyst zone was created, which permitted higher density development with lower parking ratios. For Hackensack’s revitalization this was a key component. Without the use of eminent domain and without any existing large land owners, creating zoning that promoted land assemblage allowed development to move forward. This along with designating a large enough area that allowed developers to find willing sellers without having such a large area that development could feel scattered and unconnected was a crucial first step in creating a vision for the downtown. The result of these strategies was that real estate brokers started to assemble multiple properties and package them for potential developers to consider.

In addition, the implementation of a streamlined submittal, review and approval process through the adoption of a Preliminary Review Committee Process, that gave developers a more certain understanding of the timeline and schedule. Architectural and Streetscape Design Standards were included in the Rehabilitation Plan and every Redevelopment Plan that has since been adopted. These standards represent the architectural design and scale that is consistent with the vision of the community and are the key to getting the look and design of a building during site plan approval.

The final piece was the City’s willingness to consider long term financial incentives to potential developers as a means to move development forward. This tool provides the City with significant increases in revenue that can be invested back into the City in the form of infrastructure improvements and new community facilities. For Hackensack that included the construction of a new public park, the renovation of a 140 year old abandoned building into a state of the art Performing Arts Center, the renovation and expansion of a Community and Recreation Facility, the design of new streetscape, the separation of combined stormwater and sewer system and the conversion Main and State Street back to two way. Fiscal responsibility included hiring an independent financial analyst to review each proposed PILOT.

Hackensack has attracted more than $500 million in private investment in less than 10 years, providing an example for the revitalization ambitions of other communities. Today, there are more that 750 new residential units under construction, with another 750 units that will start construction in 2018 and more than 2,000 additional units planned for in the next 5 to 7 years. The City recently opened a state-of-the-art Performing Arts Center and an award winning downtown park. The conversion of Main Street to two-way traffic is under construction and will include new streetscape and much needed and long overdue infrastructure improvements—all paid for by the revenues generated by redevelopment. The plan put in place only six short years ago is working.

Nearly 25 years later

25 Years later, Building is the Same, but Serving Builders is Very Different

25 Years later, Building is the Same, but Serving Builders is Very Different 960 540 DMR Architects

By Gregg Stopa, AIA

I’ve been with DMR Architects for 23 years, recently becoming a partner in the now 25-year-old firm. This milestone inspired reflection about the architecture industry. For the most part, how buildings are being built is the same. Design-build projects and some new equipment provide a means to go a little faster, perhaps, but building is still all about the steel, sheetrock, concrete, wood and bricks.

Architectural services, on the other hand, have expanded and evolved to the point where the architect of the 1990’s might not recognize the profession today. The most significant change is in information technology, which creates productivity and expedites communication, but also unnecessarily adds a level of stress and complexity.

First, the expectation of responsiveness pressures every facet of our service. Driven by information technology and financial structure, projects now are developed in a context that would be impossible 25 years ago. The Internet contains more information than any architect or person could possibly know. The number of suppliers, products and processes is infinite. We find frequently that clients discover prospective solutions—sometimes when there is no problem to solve—that are not even relevant, never mind applicable, to our work on their behalf. But the requirement that we address the issues is very inefficient and disruptive. And financial structures today impose an enormous pressure on our clients to complete projects at budget and on time, despite variables that are beyond anyone’s control are ever-present. The architect’s function is unrelated to these dynamics but become influencers in how our work is delivered.

Being able to work virtually from anywhere digitally creates a set of expectations for responsiveness that has caused us to change how we operate the business. Because most of us use our own personal devices for work phone calls and emails, we also have seen our workday creep longer. 25 years ago, we received and delivered documents or materials by hand—often through regular mail. 25 years ago the client called us at our desk to confer. We could only get mail once a day. Now we have developed a mindset of being ready to perform virtually on-demand.

These expectations and the technology that fomented them come with many benefits, including a massive improvement in productivity. Is the work any better? Of course, styles change, but good work always looks like good work even when it ages. User specifications, especially in health care and other technical fields, are far more complex than they once were and the efficiency demands on space are far greater. Our profession has not just responded to those demands, we developed design strategies that improved our clients’ businesses and led to new performance standards and real estate practices.

In that sense, the architect has not changed. The architect is still the person that figures out how it should look, what it should be made of and how it should get built. So while the architect of 25 years ago would be lost if transported to today—and the architect of today similarly lost if transported to 25 years ago—the object of our profession is the same. Like everyone else, we are just expected to work harder at it and be better at it than ever before.

Architecture in 2017: Sophisticated Services in a Complex Environment

Architecture in 2017: Sophisticated Services in a Complex Environment 960 540 DMR Architects

By Lloyd A. Rosenberg, AIA

Architecture is a continually stimulating profession, especially for the firm’s owner who addresses complexities in various industries in delivering the service. Most people correctly associate architecture with creativity, as design is at the core of our profession, but the business of architecture incorporates numerous skills and processes beyond aesthetics. No where is this more true than DMR, which is larger and more diverse than most architectural firms, and integrates engineering, planning, environmental, bidding, construction supervision, legal and more into our service mix.

But it does always come back to design, because that is our deliverable. A subject of much discussion in every project, the challenges of design begin not with a blank canvas but with a set of constraints: space limitations, functionality, budgets and available materials are just four of the variables that are addressed by the architect. The real estate business positions the architect as the natural pivot point between the property owner and the contractor, so not only are we engaged for design, the architect is largely focused on managing the business issues of real estate development.

The architect’s role in development has never been greater than in the current environment, where regulatory standards have grown in complexity. For example, in New Jersey, various government agencies responding to Superstorm Sandy have adopted regulations on flood plains that can undermine the viability of projects already on the drawing board. And among other issues we have encountered this year, the unexpected presence of migratory birds prevented us from removing trees, postponing construction. Unknowns adds risk to development, and one of an architect¹s functions is to foresee potential issues and plan around them, eliminating the risk, but it is not always possible.

And finally, there is the variable represented by the market itself. Construction materials and labor costs can change after the planning for a project, but before it is commenced. The architect must monitor these issues so that there are no negative surprises after construction begins. And projects that seemed to be in demand when planned might not find a robust market when completed. All of these issues and many more must be factored not only into our service to our clients, but in the management of our architectural practice.

After 25 years in business, over which time DMR has become the 4th largest architectural firm in New Jersey, we’ve seen multiple cycles in the real estate industry. No economy is like any other, making it impossible to predict the length or impact of an expansion or a contraction. The correct management policy is to be ready to respond to changes in either direction always looking for the best position for future growth. Even when the business climate is in a downturn, there is a right way to contract that allows architects to take advantage of the inevitable opportunities to grow.

At DMR the main principle of stability is depth and diversity. We have structured the firm to weather downs and maximize ups by being able to shift into various practice areas depending on the demand cycle. In expansions, office and residential work is plentiful. In contractions, education and healthcare work may not be as plentiful but technology advancements often lead to redevelopment. By maintaining a staff that has expertise in a broad array of practice areas, we not only protect the stability of our own firm, we provide our clients with a depth of institutional knowledge that can only be developed through taking good ideas from one area and applying them to another.

A complicated business? Yes. But a rewarding one, especially when the day comes that a project is complete and we see it not only for its excellent design, but for all the elements that we blended into accomplishing its development.

Timing and Process Is Key in Development Projects

Timing and Process Is Key in Development Projects 960 540 DMR Architects

By Lloyd A. Rosenberg, AIA

Delays in construction projects can be costly—but perhaps the most expensive delays are the ones that occur before construction even begins. Materials and labor costs continue to rise in the economic expansion, and the cost of projects can increase from 10-20% from the time they are approved to the time construction begins.

The political environment can be very cumbersome, and months or even years can pass between the time a project is originally conceived and budgeted until it actually breaks ground. We’ve worked with some townships on building plans as recently as two years ago that are now not in the budget anymore because they waited.

As we are currently working on more than 12 municipal building projects across New Jersey, we recommend that municipalities calendar a re-budgeting process every three months so that delays can be priced into the final budget; and that bidding for jobs take place as soon as possible after approval. Typically a consultant has been retained to assist in the bidding for the project during its design phase who can be tasked with regular estimate updates. All the costs associated with the project need to be affirmed at regular intervals if there are hang-ups in getting started.

Another important discipline is foresight into what happens with the project in the next generation. For example, if the municipality needs to house 50 office employees now, what happens if the number is 70 in 10 years? Or 30? With growth in government balanced by automation of some functions, requirements of today surely will evolve with time, and a conscious approach to how property assets can be repurposed will save challenges for the next generation.

And finally, the project managers on the municipal side need to be satisfied that they understand all the elements of the project and their ramifications before it commences and specifically articulate all of their expectations. Too often, both sides take it for granted that everything is understood by a review of the drawings. But the business issues are much deeper than the plans, and without a detailed examination of the architect’s buildings plans against the client’s plan for the building, disaster can strike in the form of surprises when the building is complete and it’s too late for alterations.

Challenge your architect to explain how the plans relate to regulatory and other requirements conditions, which will help reveal potential complications in timing, and budget impacts.

With so many elements going into the making of a new building, recognizing that there will be surprises during the construction phase that even your architect or contractor didn’t imagine, and accounting for that ahead of time can save municipalities both time and money. DMR, acting as the project manager for projects including the currently-in-construction Frank J. Gargiulo Campus in Secaucus, is using technologies that allow all contractors on the project to talk daily in real time about potential issues and practical solutions, keeping them on a tight budget and aggressive timeline.

There are risk-management processes that can deliver highly predictable and desirable project outcomes, but often timeframes and budget issues push even the most disciplined professionals off best practices. At every turn, people need to remind themselves to measure twice and cut once. Mistakes mean doing things over, and that is far more expensive than doing them right the first time.

This article also appeared on New Jersey Association of Counties Newsletter.

Making Partner

Making Partner

Making Partner 960 540 DMR Architects

By Lloyd A. Rosenberg, AIA

The firm I founded in 1991, DMR Architects, belongs to six of us a result of naming the first of what I expect will be many partners.

The profession of architecture has spawned many compensation structures and equity arrangements, but it is probably fair to say that if a firm is going to invite partnership, it does so sooner than 25 years. So why now?

DMR generously rewards innovation and productivity and as a result we enjoy strong employee retention and company morale. Our wonderful company culture is always evolving and at this point in our history needed an aura of leadership that is prospectively eternal and needed to expand beyond one person. And then, after going through the process of contemplating where to begin sharing the firm, I realized that “making partner” is not just a recognition by the firm of the team member attaining an elevated value as a result of their contributions. Making partner happens because the firm itself creates an environment that encourages personal growth for its employees and has committed to a system of promotion that goes all the way to the top. Under that criteria, when I considered whom to name a partner, I realized I could make a case for almost everyone at the firm. And thereby began a difficult process of identifying a first set of partners who could act as mentors for other team members, resulting in the first five “making partner” and providing a path for the rest.

The new partners have committed to incorporating into our value system a process of continuing to make new partners, which will take on a life of its own. As a profession, architecture evades a simple metric for who drives the success of the firm. For example, while law firms are collaborative places, their nature is quite different from an architectural firm, where contributions to the end product come from a diverse set of professionals inside of and outside of the firm; and the regulatory and professional controls are applied in a variety of environments. Our billing routines are also unique to our profession. Like law firms, we like rainmakers and we like workhorses, but we don’t limit the measure of the team member’s value to those criteria. For example, we recognize that the contributions made by our in-house legal, finance, new business development and marketing people are invaluable to the operation of the firm.

So what “makes” a partner? At DMR, the common thread is that they treated the firm like owners before they owned it, but the other aspects vary a surprising amount. In varying proportions our new partners are old-hands, younger-hands, extroverts, introverts, scholars, warriors, romantics and empire-builders in varying proportions, among many other attributes.

If it is puzzling why it would take me 25 years to make partners and now I have made five partners and am looking forward to considering more, it’s because the process of inviting our first set of shareholders has been an epiphany to me of what makes DMR work: which is that many of our people feel like they own the place and are willing to do what it takes to help us advance as a firm.

Six Factors to Consider When Making Healthcare Build/Retrofit Decisions

Six Factors to Consider When Making Healthcare Build/Retrofit Decisions 960 540 DMR Architects

Finance leaders in the healthcare sector should be aware that the actual budget for adding to an existing building can far exceed the contractor’s bid once additional costs are added.

By Lloyd A. Rosenberg, AIA

Many hospital administrators find themselves contemplating if they should build on campus or retrofit or move physicians into new spaces in response to the many changes in healthcare today, including hospital mergers and expansions, technology implementations, value-based care, and changing patient demographics and needs.

That decision involves many factors, from obvious issues such as cost to more obscure considerations such as hospitals’ and health systems’ reach in their communities. Here are six areas hospital leaders should consider when deciding how to expand their facilities.

Cost

The architect should provide examples of costs for similar facilities so that hospital leaders can consider all costs, not just the price per square foot for construction.

The actual budget for adding to an existing building can far exceed the contractor’s bid once additional costs are added, including permits, new heating and cooling systems to accommodate the extra space, and other costs associated with construction. Hospital leaders should talk with all the experts—the contractor, architect, electrician, lawyer—to determine what other costs are involved and what items might not be part of the bid.

The architect may not be able to provide a standard check list, because every project comes with its own unique challenges, but hospital leaders should expect that the assigned team of architects has experience on similar projects.

Reach

Many hospitals are feeling the need to compete for patients throughout the state, making reach into other counties a necessity. For example, Hunterdon Healthcare’s main hospital is in Flemington, N.J., Hunterdon County, but hospital leaders were interested in expanding the health system’s services into neighboring Somerset County. They recently opened a renovated 55,000 square foot, three-story building that provides the services of Hunterdon Cardiovascular Associates, Hunterdon Heart and Vascular Center of Bridgewater, Hunterdon Urological Associates, Hunterdon Healthcare Center for Endocrine Health, and Hunterdon Healthcare Physical and Occupational Therapy.  The result is convenience for current and new patients who live in Somerset County needing services and treatments closer to home.

Space

With many procedures that once required overnight stays now being done on an outpatient basis, some hospitals have surplus space that can be repurposed.

One example is St. Peters Hospital in New Brunswick, N.J., which recently refurbished its dialysis lab into admissions, financial advising, and phlebotomy. The relocation and consolidation of these three departments next to the main lobby offers convenience for patients because they typically access those services at the beginning of their hospital stay. In addition, the change allowed for more space and patient privacy, adding to patient satisfaction.

Similarly, new technologies often take up less space, giving hospitals room to reorganize. Even the equipment that was designed around a few years ago has become obsolete. For example, after 15 years, Robert Wood Johnson Health System redesigned a project to accommodate newer, updated technologies.

Interconnectivity of Practices

New construction or retrofit decisions should also include consideration of which practices and administrative services should be together, and which might function more effectively away from the rest of the main building. Placing administrative staff who work directly with patients in the same building as the practices they serve offer convenience and efficiency to patients and staff.

Similarly, providing space for complementary practices, such as housing physical therapy and neurology staff with orthopedists in the same facility, makes it easier for patients to get to their appointments and for physicians to work together to handle patients’ health needs holistically.

Robert Wood Johnson recently redesigned the 3,500 square foot first floor of its Somerset Street medical office building in New Brunswick, N.J., in order to better serve patients by relocating the obstetrics/gynecology and orthopedics offices from the main hospital. Since these services are done on an out-patient basis only, giving them their own space removed the need for patients to find parking and walk through the main building for short visits.  The new facility will include a reception and waiting area for patients, five exam rooms, an X-ray room, and physicians’ and staff offices.

Relationship with Community

Because of increasing life spans, more people are in need of geriatric care, bringing medical practitioners and caretakers out of the hospital and office environment and into the communities. Off-campus space can play an important role in a hospital’s commitment to continue to be part of the healthcare team for this demographic.

These spaces are often off-site and can be in different counties and regions, adding new buildings and staff to the budget.

Transportation and Parking

Once a hospital decides that it is time to expand off-campus, location, as with any real estate decision, is the most important feature of a building. The architect and planner are great resources to help hospital leaders find a location that patients — current and new — can get to easily, either on their own or via public transportation.

This article originally appeared in the Healthcare Financial Management Association Strategic Financial Planning newsletter. 

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