Inside the P3 that’s reinventing Long Beach
By Jeff Byles
December 7, 2016
Several years ago, officials in Long Beach, California, found themselves in a pickle. They had an aging city hall in need of seismic retrofits (price tag: $194 million). Next door was a 1970s-era bunker-style library and a 4.9-acre park not nearly meeting its potential — all locked within a superblock that left downtown streets lifeless.
Long Beach had no appetite for a bond measure to fund a new civic center. And there was nowhere else to turn for the huge investment needed to reboot its ailing downtown core and address the critical seismic issues that had to be solved.
Fast-forward to last July, when ground was broken on a $520 million, 15-acre project that will deliver a state-of-the-art city hall, activate downtown through a restored street grid, create hundreds of housing units, build a welcoming main library, reimagine Lincoln Park as a regional asset, and throw in a new headquarters for the Port of Long Beach to bring another 500 employees downtown.
The cost to the City? Roughly what it currently costs to operate its outmoded existing civic center.
This was all accomplished in a record two years — from masterplanning to procurement to the start of construction — with a public-private partnership. Known as P3s, such complex collaborations are fast becoming indispensable as cash-short cities seek to finance everything from bridges to broadband services. Now, the Long Beach Civic Center offers a case study in how the public sector can bring home substantial civic benefits — including urban revitalization, public-realm investment, and economic development — through the P3 model.
A new procurement model
Preparing a request for qualifications for a brand-new civic center in 2013, Long Beach flipped the public bidding process on its head. “We framed the procurement structure around getting the maximum for what the City could afford, as opposed to who could give us the lowest price,” said Orion Fulton, a transaction advice manager at Arup, which served as lead advisor to Long Beach. “We knew the City could pursue the project as long as it didn’t exceed their current budget. So that became our proposition to the market: prove to us that you can deliver a new campus — from a planning, design, and financial perspective — within that budget.”
While P3s come in many shapes and sizes, Long Beach’s is a design-build-finance-operate-maintain model. In short, this means that the winning development team, Plenary Edgemoor Civic Partners (PECP), will deliver the civic center and guarantee its maintenance and repair for 40 years. The annual cost to the City will be approximately 8% greater than the $12.6 million it paid in 2013 to operate its current facility, with adjustments for inflation. At the end of 40 years, the civic center will be transferred to the City at no additional cost.
During a 2015 city council vote to approve the project, then director of economic and property development Michael Conway noted that bringing the existing facilities up to a like-new physical condition would require an annual cost of $6.7 million over the next 35 years. The P3 project will save 30% annually when this deferred maintenance is considered.
Financial savings aside, the P3 model carries other benefits. Those include the transfer of risk — think construction change orders, cost overruns, scheduling delays — from taxpayers to the private sector. The four-decade timeframe also accounts for true lifecycle costs. In this case, Johnson Controls, a diversified company with building management and operations expertise, will serve as the complex’s long-term operator, responsible for everything from routine repairs to replacement of building components over the 40-year term. The contract requires PECP, through its operator, to maintain the facility at a condition equal to 80% to 85% of replacement value (i.e., in good condition) and hand it over at the end of the term. This will cost the City less in the long run by avoiding expensive fixes stemming from deferred maintenance and will guarantee that City facilities have a long useful life.
Leveraging City-owned land
The City’s willingness to explore how the superblock could be reconfigured and monetize the excess land was instrumental in making the project affordable. “Many cities are cash-poor and land-rich,” Fulton noted. “But moving uses around in ways that create value can be difficult to orchestrate. Long Beach is a clear example of how cities can leverage the assets they have.” In this case, the City’s contribution to the project included land valued at nearly $30 million. The P3 structure allowed the project team to think big about how those properties — nearly all contiguous — could be used to best serve the public interest.
To maximize both civic and commercial potential, the current city hall will be demolished and its roughly 4-acre site privately developed to include a 36-story mixed-use tower with residences, a 200-room hotel, and a street-level “urban courtyard” featuring restaurants and retail. A separate parcel will be developed as multifamily housing. Of the project’s potential 600 residential units, at least 10% will be reserved for moderate-income tenants.
Meanwhile, the new city hall will be built next door to its original site, with a design that takes the long view in promoting workplace well-being. “The cost of the building is a fraction of the cost of the people who are going to be working in it,” said Jeffrey Fullerton, project director for PECP. Tending to user needs, for example, the team sought to catalyze collaboration by providing an open plan concept and sizing the floor plates so that most of the municipal departments could occupy their own open floor. Other features, such as the use of natural light and the siting of the council chambers within a glass-walled pavilion, convey a sense of government transparency and civic engagement.
A sociable, sustainable downtown
Throughout the civic center, high-quality public spaces are expected to become an asset for the entire downtown. To that end, the design team, led by SOM, reintroduced the area’s street grid, knitting Long Beach back together with a pedestrian-scale streetscape. Adding civic character, the new, 92,500-square-foot main library is conceived as a multiuse social space, including a porch-like outdoor room opening onto Lincoln Park.
Now in the first phases of construction (Arup is managing the contract for the City and Port of Long Beach during the design-build period), the civic center will provide a leap forward in sustainability. A central plant will serve the entire complex, and the buildings have taken advantage of natural daylight and the mild local climate for ventilation. The new city hall should consume 25% of the energy of the existing building, and the project as a whole will obtain 25% of its total electrical load from photovoltaic panels. While helping reach an anticipated LEED Platinum rating, such energy savings were important to the project’s bottom line. “Every year we will take that approximately 3 million kilowatt-hours of electricity and, instead of paying that money to the utility, we’ll use the equivalent dollars to cover debt service and capital improvements,” said Fullerton.
Aligning interests, unlocking innovation
Given the intricate dance of public and private interests, building stakeholder trust was paramount. “P3 partnerships are complex, long-term agreements,” said Long Beach mayor Robert Garcia, “so it is essential to communicate the benefits of the project to residents and to engage them in the approval process.” Extensive public outreach — more than 100 meetings spanning every part of the city — helped secure unanimous city council support. “The public benefits to this project are clear,” Garcia added. “The P3 structure allowed us to use an existing revenue stream to finance construction of three new public facilities, a new park, and a revitalized and reconnected civic center.”
In the end, this linking of public and private real estate development aligned all parties behind civic goals. And that may be its most significant impact of all. “If public agencies know what they want, and how to ask for it, they can get a lot of innovation,” Fullerton noted of the P3 model. “You can put your challenge out competitively to the private sector, then smart designers, engineers, builders, operators, and developers will come up with an efficient solution that’s viable for the long term. That’s really the magic of it.”