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Better roads, better deals; Are P3s the answer?

By Frank Banda, CPA, CFE, PMP, Managing Partner, & Jeremy Swan, Managing Principal, CohnReznick LLP

Earlier this year, Congress announced that rebuilding America’s crumbling infrastructure was a top priority. Yet, with President Trump and congressional leaders pledging to invest $2 trillion to revamp the nation’s infrastructure, there has still not been an agreement reached or a bill passed to pay for it.

Despite this, numerous infrastructure development projects – airports, bridges, toll roads, even sports stadiums – are moving forward using public-private partnerships (P3s).


These contractual agreements between a public agency at the federal, state, or local level and a private sector business are based on delivering a product or service for the public’s use. In addition to sharing the funding and other resources, the government agency and the private sector business also share in the potential risks and rewards of the P3 project.

Infrastructure development is not the only beneficiary of P3s. Construction projects for office and municipal buildings, affordable housing, hospitals, schools, and other real estate development are being funded using P3s.

Financial Modeling for a P3
P3s typically involve two parties: a private sector financial sponsor looking to profit from its investment and a public sector partner that believes the private sector can build its project better, faster, smarter, and, ultimately, less expensively than the government could.

The two parties generally approach the project by first performing a due diligence assessment that includes a comprehensive cost-benefit analysis. Once the due diligence process has been completed, the findings and other financial considerations from both parties are evaluated, ultimately becoming the financial model that forms the framework for the partnership.

Both the private and public side of the P3 then go on to assess a variety of financial and risk-related factors including construction and delivery costs, revenue projections, expected costs over the lifetime of the project, risk-sharing scenarios, and other critical success issues.

A final P3 agreement may include payment schedules that coincide with key milestones and/or driven by performance metrics. If done right, a project completed through a P3 agreement will deliver substantial benefits to both the private and the public partners.

Benefiting Communities: From Frequent Flyers to Major League Baseball Fans


Transportation is at the heart of P3-funded development projects. CohnReznick is currently involved in the $4 billion renovation of New York’s LaGuardia Airport, providing integrity monitoring services.

The LaGuardia project is a classic example of how a P3 can be structured. The government agency, in this case, the Port Authority of New York and New Jersey, is working with a private financial sponsor, for this project, a global investment and asset management firm.
A group of other private companies has been called in to provide design and development services, construction, and operations management.

With LaGuardia being dubbed by some as “North America’s worst airport,” significant progress continues to be made on the renovation with the bulk of the project slated for opening next year.

P3s can also be the sparkplug for multi-faceted development involving a variety of property types.

Earlier this year, CohnReznick ran a feature on our website about the P3 created to construct SunTrust Park, home of the Atlanta Braves, and revitalize the neighboring community.

The area surrounding the ballpark, now called The Battery Atlanta, was transformed into a thriving mixed-use development with dining, retail, residential, and corporate properties at the foundation.

In addition to turning a formerly overlooked area of Cobb County, Georgia into a go-to lifestyle destination, the local government may be the biggest winner here. According to a Georgia Tech study, The Battery Atlanta now generates $18 million in revenue per year for the county government with $12 million going to the local school system.

Private Investors Seek Value in Infrastructure
With a dearth of quality deal opportunities and plenty of dry power on hand, private equity firms and other financial sponsors are seeing the potential for solid, steady returns by investing in infrastructure.

According to a Prequin report released early this year, investment firms raised $85 billion in 2018 targeting global infrastructure – a $10 billion increase over 2017. Prequin expects that number to grow substantially in 2019.

From an ROI standpoint, the Wall Street Journal has said that infrastructure returns typically fall “somewhere between fixed-income securities and private equity.”

Yet, major private equity players like Blackstone and KKR have ramped up their infrastructure investment programs. Blackstone closed the inaugural fundraising phase for Blackstone Infrastructure Partners in July with commitments of $14 billion.

In addition to seeking returns above 10 percent, private equity funds and other private investors like infrastructure projects that generate revenue when their money is tied up in the investment.

For this reason, projects such as toll roads have been especially appealing. While P3s have become commonplace in Canada and other countries, they are still relatively new in the U.S. Yet, with the growing need by government for infrastructure construction, along with the investment community’s desire for lower-risk, quality deals, the use of P3s as a financing structure will only grow.

Generally, states regulate P3s and an increasing number of them are adopting P3 regulations.

According to Inframation Group, 12 states had P3-enabling legislation in 2007. Today, 33 states have this legislation and that number will surely continue to increase.

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