Build Without Tax Hikes: How Public Private Partnerships Fund Major Real Estate Projects

Ray Garfield (00:00)
16 years after they first started the process, telling the mayor of the city council, you guys have never offered more than $9 million to these other developers in support in all of these selections that you had. And what we’re telling you is you’re gonna have to put up probably $30 to $40 million in order to get this $120 million asset.

And here’s why. We invite their bond councils to the table. We invite their financial advisors to the table or CFO. This ⁓ is a dynamic, very transparent process that we bring in to educate and to inform the public clients on the reality of the capital plan and why it has to be a certain way in order to achieve it.

Scott Bursey (02:24)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. Today we are diving deep into the world of public private partnerships. The projects that don’t just build buildings, they build entire communities. Our guest is a true heavyweight in the space, bringing the strategic fuel needed to bridge the gap between government vision and private execution. He’s the man behind Garfield Public Private

Ray Garfield. Ray, welcome to the show.

Ray Garfield (02:54)
Thanks for the invitation, Scott, pleasure to be here.

Scott Bursey (02:57)
It is an honor to have you here, Ray. We’re thrilled to have you here. For our listeners who may not be familiar with your journey, please tell us, how did your cure begin and what is your main focus now?

Ray Garfield (03:09)
But as old as I am, that’s a long story, Scott. How did I begin? When I got out of the Navy, I worked for Ross Perot for a couple of years when he was building his computer company and traveled more for him than I did when I was flying for the Navy. I went into real estate because my grandfather and my uncle and my family had been in real estate.

and started out brokering land, syndicating land at a local firm. I was very fortunate to be able to sell that firm to Merrill Lynch when they were expanding in early 80s. And then went from Merrill Lynch to the Solomon Brothers on Wall Street where they invented more of these back securities.

And that finally was recruited to ⁓ take a firm out of a huge bankruptcy back in the early 90s. once we turned that company around and sold it very successfully, started this firm. Started this firm in 1997.

⁓ built it on my experience on Wall Street ⁓ in collaboration with one of the largest general construction firms in the country, using their balance sheet and their depth and breadth to access communities that needed infrastructure, important new vertical infrastructure, buildings, courthouses.

Convention centers, performing arts centers, ⁓ just any even parking structures, municipal parking structures, as easy as that is. ⁓ But they were having difficulty with capital, with financing. And so with my Wall Street background,

we tried to couple the desires of that big general construction firm to construct jobs with…

With our capital markets experiencing knowledge gained on Wall Street to bring creative, in some cases revolutionary financial solutions that were not typical financial solutions to the table. ⁓ To win deals and then go to the…

let them construct and guarantee the construction, thus to oversee the development and deliver them to these public sector clients. That created what is now Garfield Public Private, where we do develop nationally, coast to coast for cities, counties, state agencies, universities, healthcare campuses.

day through school, airport authorities, any public agency that has important piece of vertical infrastructure that they need to get in the ground. ⁓ But they’re struggling either financially or politically in some form or fashion. And so we couple private solutions, even some private capital.

along with public solutions and public capital into a public private partnership delivery. So that’s a long story made kind of short.

Scott Bursey (07:29)
That’s an incredible pathway. And what really caught my attention about you was the way that you’ve been able to navigate and harmonize, if you will, the complex interests of public sector needs and private investment returns. That skill is the key to unlocking massive, impactful deals.

Ray Garfield (07:47)
Well, it is, believe me. When I really started this company humming in the late 90s, public development was…

sort of.

being described when you had to hire the lowest bidder, if you will, all the time with public dollars, with public bonds. The process was what they called at the time design, bid, build. And then over the years, it was such a sloppy process that it was design, bid, build, litigate, and occupy. So when you took that public approach that existed all the way through the 90s and into the early 2000s,

⁓ to build a courthouse, for example. You first hire an architect, let him design the whole thing without a contractor. Take full designs, took a year to create.

and then put them out for various contractors to bid and give them 60 days to come in with a price and have to hire the low bidder. So you’ve got an imperfect system in trying to price and schedule these projects so they hardly ever came in on scheduling on budget. So our goal was to create a more efficient

predictable solution. most of our projects are within our call design build. So we have a contractor on board from the earliest days of design. So they’re at the table with the architects and they’re perfecting each step of the way. we’ve just gotten away and so instead of the lowest price ⁓ mandate if you will.

the low bidder. ⁓ We’re providing best value selections and not low bid selections. So our public clients can look at the process and see that we’re not trying to take them to the cleaners at all. We’re trying to

give them an on time, on budget program where their bonds are very efficiently spent in the design and construction.

fit out and open it.

Scott Bursey (10:52)
What is the biggest advantage of working with a municipal partner on a development deal?

Ray Garfield (10:58)
So, again.

It’s good when we’re dealing with communities that have had the bad experience first. we learned early on that we need to be extraordinarily candid with our public clients. ⁓ We’re well known for giving them the hard reality news early on. And so…

The process, when we have that reputation, we also have the reputation of not being the first guy selected.

And we often tell the client, well, you may not select us, but we’ll be back. You can call us back. Because that is in fact true. We had one city that we delivered a terrific headquarters hotel for their convention center. We were the fifth developer in 16 years that they hired. Four developers before us, from 2000 to 2016, had failed once they were hired to build a 350 room

forced

our hotel to support their convention center. And they failed because they never told the city the hard truth about what that public-private partnership was going to be, how much public support was needed to combine with the private support that was necessary, that you were able to get, in order to actually fund the deal so that you could pay architects to design the hotel and could pay a construction company to build it. So here we are.

16 years after they first started the process, telling the mayor of the city council, you guys have never offered more than $9 million to these other developers in support in all of these selections that you had. And what we’re telling you is you’re gonna have to put up probably $30 to $40 million in order to get this $120 million asset.

And here’s why. We invite their bond councils to the table. We invite their financial advisors to the table or CFO. This ⁓ is a dynamic, very transparent process that we bring in to educate and to inform the public clients on the reality of the capital plan and why it has to be a certain way in order to achieve

We come in and we want to develop it. We want to get a development fee. Let’s accept whatever the city’s putting out there, whether it works or doesn’t work. And when it’s that process, they’ll waste two to three years in the process and then have a failed transaction.

put it out again, another solicitation, another request for proposals, an RFP or an RFQ for soliciting responses to build this important asset. So it’s the candor that we bring to the table from the very beginning to say, you know, here’s what you’re to need to do in order to succeed. You know, it’s a great story. And early on, we were…

brought in as a consultant around 2005 to talk to a city about a hotel and conference center. And we told them what the demands were and what they needed and how we’d go about doing it. And before they could sign us up, a very well-known hotel developer out of the Midwest came through in his own private plane and said, ⁓ I can do that deal for less money than Garfield’s telling it. And so they hired him.

When they hired him, they called to tell me they were hiring this other guy. said, look, he has a reputation for changing the deal once you hire him.

six to 12 months he’s going to come back and say I need more money from you city. need more money. For some reason you know gosh I didn’t know I had to buy the site I didn’t know how to I didn’t know I had to build parking or whatever it was

and sure enough about eight months after they had selected the guy I got a call here in my office ⁓ from the economic development director from the city and the landowner that was going to sell the land for this hotel.

conference and they said Ray you were right so Mr. So-and-so came back in and said it was going to cost this much more which is more than you originally told us we told him get on his plane to fly back home and we’ve got tickets on Southwest Airlines to come see you tomorrow with a memorandum of understanding now that doesn’t happen very often okay but that was the first time it happened to us that we laid down the gauntlet we didn’t get selected

We told them what was going to happen. And rather than bite the bullet and go in a disappointed manner with the old guy and putting up more money, they stepped back and they said, we really appreciate the honesty that Garfield presented to us and we’re going to give him a shot to do the deal. And we developed this terrific hotel conference. So it’s not.

wasn’t the last time that happened, ⁓ but it was the first time and it was very memorable.

Scott Bursey (17:01)
The transparency through the process is so critical. And on that note, what policy creates the greatest opportunity for P3 developers right now in your eyes,

Ray Garfield (17:13)
Well, it’s not a particular policy. mean, it is what’s most important for a community, what new piece of infrastructure they have. ⁓ When we did our first courthouse for the city of Atlanta, ⁓

construction company in Atlanta, been there for 30 plus years, that we were working with, called and said, we’d like you to come here because we were out at the Atlanta Falcons football game with the judges, they didn’t populate that courthouse, the existing 50 year old courthouse with no security. And then,

game and over dinner afterwards they were saying we’ve got to have a new courthouse but the mayor is not willing to put it on the next bond referendum coming up next year because he’s already about a billion dollars in requests for votes to approve a billion dollar bond and he doesn’t want to overburden that bond and risk losing the election so he said he put us out in another four years and we just don’t think we can wait four years so

think he could come and talk to them, so he did.

My suggestion after a couple of days in Atlanta and discovering that they had fines and forfeiture revenues coming into the city. Fines and forfeiture revenues, most of it levy by the judges and the courts. Totaling $25 million a year. And all we needed was about $5 million a year to amortize a $16, $5 million bond to this courthouse.

we suggested that they enter into a lease on that building that we would develop.

Basically a 25 year lease for Atlanta typically is 30. But in this case it was 25 years, you enter into an annually appropriated lease, becomes a line item budget for the city each year. They would accrue $5 million out of the 25 million a year that they had coming in from fines and forfeiture. Not from their general fund, not from advorum taxes, not from sales taxes and stuff like that, going to the general fund.

But these special funds were outside of general fund, avoiding a public referendum. So we didn’t have to go to the voters for approval. And we were using existing proof and stream of income that standard importers and moody rating agencies on Wall Street could underwrite. And so what happened is we were able to sell a double A bond, tax exempt.

and used a state agency, not-for-profit agency, to act as the owner of that building for the next 25 years while we had those tax-exempt bonds being amortized by the appropriation of that $5 million from the fines and forfeiture to amortize that mortgage. Principle of interest over 25 years eliminated the mortgage at end of 25 years and the property was given back in city. So rather than lease from a private

an

owner using conventional financing and higher interest rates, we suggested this not-for-profit model where the state agency nominally owned the building for the city while it had the mortgage on it and then gave the building to the city when it was mortgage free. So it was a terrific execution and you know happened within less than a year before we broke ground rather than waiting four years for another referendum.

and inflation that you don’t know is going to be next month, much less four years from now, right? So it’s wiping away the hurdles that they see and trying to come up and provide a program for them that their advisors believe is a sensible solution and that we can all carry out for them.

Along with that, we had a blue-ribbon team, one the largest contractors in the United States, imported right there in venturing with architects and engineers in Atlanta. So we checked all of the boxes politically that we needed to check, giving them a very…

efficient and smart solution to get them out of a 50-year-old building and into something that was secure for their citizens and for the judges and everybody else that were using the building.

Scott Bursey (21:48)
Ray, you talked about transparency, but I’m curious. What is the one essential skill a developer must have to successfully negotiate with the city?

Ray Garfield (21:58)
⁓ I’m laughing because… ⁓

just encounter so many headwinds all the time. I mean, we will go up into a community and compete hard for job and have, you know, some crazy thing happen that I don’t know where…

not his skill, not his experience, doesn’t have a track record and the relationships with all of the…

whether it’s a big donor to the mayor or to the university.

Sun Law as a development firm.

just never know. So we try to just put our best foot forward. And when we see a request for qualifications, RFQ, request for proposals, an RFQ.

by public issues.

think you’re terrifically qualified to succeed.

We’ll then people our team with the very best architect for that particular job. mean, if it’s a performing arts center, there are very few buildings as complex as a world-class acoustically designed performing arts center, a building within a building.

Well, not every architect can do that. We can’t use an architect who’s great at designing a residence to design a performing arts center. So we have a selection of maybe 10 or 12 great architects across the country who design multiple performing arts centers. Same with contractors. You’ve got to have a contractor with a terrific body capacity, but with the experience of having built another performing arts center.

And right on down the line with the mechanical, electric, plumbing guys, the civil guys, the structural guys, the interior design people, the specialists for whatever the building is. We try to people our team that we put together and submit our response to that solicitation to be in an interview and to hopefully convince the committees that we’re talking to that we’re the most qualified team to be able to succeed for that.

And even with that, we fail probably more than we should too.

I don’t know how you can answer me.

Scott Bursey (24:13)
Ray, thank you for that breakdown. That was excellent. And yes, it did. It’s time for the money question. This is the one that our listeners stay tuned for. Ray, what piece of advice or strategy could you give our listeners that would help them execute their first major P3 deal?

Ray Garfield (24:13)
Friday.

⁓ well, ⁓ he three years is in.

very specific industry.

you ask 10 developers their definition of P3, can get 10 different answers. We created our company before P3 was a term of art. We just were a private developer going after public business and trying to provide these different services. In the early 2000s, probably five, six, seven years after we started our firm, a lot of…

international funds.

And they look at the billion dollar views. They look at huge airports. They look at highways, bridges, et cetera. And their experience in Europe, in Canada, in the Far ⁓ East, none of the countries around the world, other than the United States, the US is the only country in the world.

allows tax and financing for public projects. And even that’s limited because we don’t do taxes and financing for federal projects. Department of Defense, you know, you build a post office or a federal courthouse, it’s not tax agent. But county courthouses, state courthouses, city courthouses, city halls, you know.

airport authorities, etc. Those projects can be done with taxes and financing. So we rely on our Wall Street and

stepping stone into this collaboration with public agencies to do public private jobs. So, you know, I think when I talk to architects, it’s

want to know how do we do this better. So if an architect’s successfully designed a building on a college campus, and they’re talking with the head of facilities for that campus, and the head of facilities said, we need a new student housing project here. We don’t know how we can get it financed right now. The dean of the college or the chancellor’s not providing this funding for it. But we definitely need it. How do we do that?

I say, call us, introduce us to the university’s finance or facilities group and let us help them think through the solution. Same with Atlanta, Georgia. To talk to a general contractor about how we can help them win a construction job. If you are already building something for them, they love you and they need something new.

don’t know how to get it, call us in. So those warm introductions are very fundamental to our being able to.

don’t know that, I started out as a broker, started out syndicating land in Dallas, Texas. Far cry from what we do today. So it’s taken me a career and various jumps from selling land to becoming mineral linch commercial real estate and selling bigger pieces of land and buildings and then being recruited.

to take the firm out of bankruptcy that is in the real estate business and to work through that solution.

And then finally getting to do more to combat security zone.

knowledge based into what we’re doing now. So I’d say…

Look, try to find a public partnership company that exists and that’s successful and come on board and work alongside the folks who’ve been doing it for some years, learn the business. And I think that’s probably a great stepping stone into that particular model, if that’s what you want to do.

Scott Bursey (28:37)
Ray, your insights are gold. They’re worth their weight in gold. If our listeners want to follow your journey or collaborate with you, what is the best way for them to reach you?

Ray Garfield (28:49)
Of course we have a website which is GarfieldPublicPrivate.com. GarfieldPublicPrivate.com, we’re headquartered in Dallas. anybody can reach us off of that website or…

you have any.

Scott Bursey (29:06)
Ray, thank you so much for joining us today.

Ray Garfield (29:09)
Thank you, Scott. Pleasure to meet you and talk to

Scott Bursey (29:12)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests, just like Ray Garfield, who are out there making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.