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Sunday, 25 May 2014 22:00

The Road Ahead: Real estate, industry groups say collaboration key to finding infrastructure solutions

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A new poll by the Michigan Chamber of Commerce found that 72 percent of voters favor spending an additional $1.8 billion per year for the next decade on road and bridge projects such as the construction of the I-96/M-231 interchange in Ottawa County. A new poll by the Michigan Chamber of Commerce found that 72 percent of voters favor spending an additional $1.8 billion per year for the next decade on road and bridge projects such as the construction of the I-96/M-231 interchange in Ottawa County. PHOTO: MDOT

Fixing Michigan’s roads, bridges and other infrastructure will certainly require the state to clear key budgetary hurdles, but it also may call for new models of public-private partnerships to see the projects to completion.

That was the message from a number of real estate development professionals, industry association executives and public sector leaders at the Urban Land Institute of Michigan infrastructure conference held this month in Lansing.

Hosted in conjunction with the American Council of Engineering Companies of Michigan (ACEC) and the American Society of Civil Engineers Michigan (ASCE), the conference also discussed the latest 2014 “Shaping the Competitive City” infrastructure report commissioned by the national ULI group and prepared by Ernst & Young Global Limited.

“We’ve got our work cut out for us,” said Chuck Hookham, vice president of Ann Arbor-based engineering consulting firm HDR Inc. “We need bold leadership and a compelling vision … and collaboration with more innovative ways to fund our infrastructure systems.”

The state’s infrastructure problems aren’t just related to ailing roads and bridges, said Hookham, who’s also the at-large director-elect of ASCE. Additional investment in better public transit, energy infrastructure and wastewater systems need to be a part of a comprehensive investment plan, he said.

Many of the state’s infrastructure issues Hookham discussed also ranked as top priorities in the minds of national economic development and real estate professionals surveyed in the ULI/Ernst & Young report.

Of both public-sector and private-sector respondents, 78 percent ranked public transit services as the top priority for municipal investment over the next 10 years, followed by investments in roads and bridges and improved pedestrian infrastructure, the report stated.

Lowest in the rankings were better freight infrastructure, improved parking management and more car sharing and other so-called “new mobility” services.

Infrastructure investment, although often overlooked and underfunded, is the backbone of cities, said Kris Larson, president and CEO of Downtown Grand Rapids Inc.

“It provides people with a means to be mobile … (and) to connect people with products,” he said. “Infrastructure enables growth for the sustainability of investments and, most importantly, links our community.”

To meet future needs and maintain the level of service for current systems, creative public-private partnerships are going to be a necessity to manage costs and gain efficiency, sources said.

Lasting collaboration

At both the state and local levels, future infrastructure planning must focus on performance metrics and research as well as build in sustainability and resilience, said Hookham, adding that private industry also needs to come to table as a better partner in that planning process.

“There isn’t going to be a national solution — it’s a grassroots thing — and we need to push new ways of thinking,” he said. “There are new models for these types of transactions and investments and they are the future of how these (infrastructure investments) get done.”

As an example, Hookham pointed to the Holland Board of Public Works’ “Power for the 21st Century” community engagement plan, which eventually led to the decision of decommissioning the city’s coal-fired James DeYoung Power Plant by 2016 and building a new natural gas-fired plant at Fairbanks Avenue and Fifth Street. The process was based off of a sustainable return on investment (SROI) analysis HDR Inc. produced for the project.

SROI is a concept that takes into account the financial, social and environmental impact of various scenarios to maximize the overall benefit for the project and the community.

“As professionals, the sandbox is big and there are a lot of opportunities to partner for the best solutions going forward,” Hookham said. “In the future, everyone is going to need to learn how to apply risk and life cycle investment.”

Additionally, real estate professionals point out that there has never been a time of greater need for cooperation between the public and private sector. About 88 percent of public and private survey respondents rated infrastructure quality as the top consideration for where real estate investments are made.

“Real estate development hates uncertainty,” said Anthony Pecchio, vice president of Christman Capital Development Co., the real estate development arm of Lansing-based Christman Co.

To the extent there is uncertainty around investments in infrastructure services — including adequate power supply and water and sewer capacity — that will affect whether real estate development happens in those areas over time, he said.

In what’s considered the “soft infrastructure” side of the real estate investment equation — items such as quality of life, access to education and the like — Michigan is situated rather well, but on the hard infrastructure side, the state is at a disadvantage, Pecchio said.

Years of declining population and lackluster economic performance have forced the state to cut back on its investments in infrastructure, he added.

While the state has a good foundation of infrastructure to build from, the tight budgets and lack of adequate funding for infrastructure upkeep and maintenance just mean that the bill will keep growing and getting kicked to future generations, Pecchio said.

“(The bill) is coming due and we better start paying it down — because if we don’t, it’s going to hit us right when we can deal with it least,” Pecchio said.

In a panel discussion at the ULI conference, Pecchio, Detroit-based Larson Realty Group President and CEO Eric Larson, and KPMG principal Liam Kelly all agreed that public sector expectations in developing infrastructure projects are much different today than in the past.

More and more, states and cities are leaning on the private sector and outsourcing key functions, particularly when it comes to infrastructure operation and management, they said. At the same time, this means cities and states are relinquishing assets and giving up revenues that have long been in the public domain.

Still, the private sector isn’t single-handedly rescuing public infrastructure — citizens are also being asked to dig deeper into their wallets.

Public will

While the state House’s recent approval of an additional $450 million in road funding on May 8 is the biggest bipartisan move forward on the subject to date, it only covers a small slice of an estimated $2 billion problem.

The good news, however, is that the public seems increasingly willing to pay to fix the state’s roads, according to a new poll commissioned by the Michigan Chamber of Commerce.

“Increased funding to fix the roads and improve public transit is necessary to keep Michigan moving forward, and this poll shows solid voter support for a major investment in transportation,” Chamber President and CEO Rich Studley stated in a release.

In the statewide poll of 600 voters conducted by Marketing Resource Group (MRG), Michigan voters consider the condition of roads and bridges second only to jobs and the economy as the most important issue facing the state. Additionally, the poll found that 72 percent favor the state spending an additional $1.8 billion per year for the next decade to maintain and improve roads and bridges.

Other findings show 68 percent of respondents are willing to pay at least an additional $10 per month in taxes to maintain and improve roads and bridges.

While road funding gets the most attention of any infrastructure issue, other improvements to transit, telecommunications and water and sewer systems must have the same compelling arguments, according to the ULI/Ernst & Young report. It found that approximately 82 percent of both public and private sector respondents said the public’s willingness or ability to pay for improvements will be the main driver of infrastructure investment over the next 10 years.

The ability of individual development projects to garner public support depends on the type of project and its perceived impact on a community, said Pat Lennon, a Kalamazoo-based partner at Honigman Miller Schwartz and Cohn LLP.

“If a project is a larger, more transformative urban project, it tends to be more attractive to public groups,” he said. “These projects often have major infrastructure components to them where both public and private organizations can come together on.”

Perception is relative with real estate

Even though people criticize the condition of Michigan’s infrastructure, it still acts as an advantage that many other states don’t have, Lennon said.

“The perception of our infrastructure really hasn’t been the determinative factor in many of the deals I’ve been a part of,” he said. “I think the perception issues related to roads and bridges is more about the general public and their concerns than it is about site selectors making a decision. In general, Michigan has an advantage when it comes to infrastructure. We still have a lot of rail and road connectivity, not to mention the Great Lakes for shipping.”

Additionally, office and industrial users have begun to see that a site’s access to a deepwater port or an airport affects their ability to make connections to other markets, he added.

Sources said some of the issues Michigan has in luring real estate investment are related to preconceived notions about the state, and in particular, the plight of Detroit. There’s also the issue that struggling cities with obsolete infrastructure are unable to hide the problems any longer.

“Of course, if you’re asking people to come and put down millions in your community, one thing they observe is how you take care of your municipality, and that’s been very noticeable this year,” said Colin Kraay, investment principal with the West Michigan office of Colliers International. “The good news is that there is enough private reinvestment in the area at the moment, but the concern is how viable is this location long term.”

Read 7377 times Last modified on Sunday, 25 May 2014 21:50

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