NYC Schools Put Private Partnerships to Work
Next September, students at P.S. 59 and the High School of Art and Design on Manhattan's East Side will start classes on their old block but in new digs: a 12-story building that they will share with each other and a Whole Foods market on a mixed-use site. The two schools and the supermarket are separated by floors and design, but the project—the first of a two-phased, $700-million undertaking—is on 1.5 acres of city property leased to a private firm that will develop the site further and build the public schools portion for free.
The deal is the 17th public-private partnership (P3) and the largest to date for the Educational Construction Fund, a New York City Dept. of Education agency that uses P3s to develop mixed-use sites that include schools.
"From the city's standpoint, we wanted the schools. It's up to the developer to say what [else] would be there," says Jamie Smarr, ECF executive director.
Under this P3, the developer, New York-based World-Wide Group, gets a 75-year lease and makes annual payments in lieu of taxes. The city retains ownership of the site at 250 E. 57th Street and, by using the expertise of a private developer, it gets two state-of-the-art schools at no cost, Smarr says.
Phase one is under way and includes construction of the schools and 38,000 sq ft of retail space to be occupied by Whole Foods. It also includes the renovation of a building at East 63rd Street, a former nurses' residence that WWG bought and converted into an interim school—the first green school under ECF standards—for P.S. 59. WWG hired Skidmore, Owings & Merrill, New York, to design the 57th Street schools and Gotham Construction, New York, as CM-at-risk. It hired Ehrenkrantz, Eckstut & Kuhn Architects, New York, for the interim school and Lend Lease as the CM-at-risk. Phase two of the project, which is expected to start in 2012 or 2013, includes design and construction of an additional 78,000 sq ft of retail space and a 60-story, 350-unit residential tower.
As the city continues to tighten its belt on services, some believe that alternative project delivery systems such as P3s and design-build will save time and costs, both major reasons behind the city's choice of project delivery method on this project.
"In these tough financial times, it is absolutely critical that we explore every option to build new schools," said Joel Klein, former schools chancellor, at the May 2010 project groundbreaking.
"The economic downturn really prompted a lot of owners to investigate more of what design-build could do for them," says Lisa Washington, executive director of the Design Build Institute of America in Washington. The water/wastewater and transportation sectors increased their use of design-build during the recession as states in need of infrastructure repairs had to act quickly to use federal stimulus funding, she says. But other growing sectors include the military, health care and education. "The trend is growing," she adds.
That was borne out in an American Council of Engineering Companies of New York survey of 93 NYS consulting engineering firms earlier this year. The survey, aimed at identifying industry trends and issues, indicates that the use of alternative project delivery system—including design-build and P3s—will rise during the next five years. Some 75% of survey respondents indicated that their firms have been involved in design-build projects and 27% have worked in P3s.
Not everyone agrees, however. "I'm not convinced that we are going to see a rise in alternative delivery systems," says D. Clarke Pile, senior vice president and Northeast regional manager at Hill International, Marlton, N.J. "I see them in big circles," he says. "You get a contract du jour method that owners like, and then something happens that they don't like and they get discouraged. Their expectations are high, so they try another method." While these types of contracts can work, they can also result in owner dissatisfaction and higher costs if specifications are left up to interpretation, he adds.
But Jay Simson, ACECNY president, sees two main reasons behind the expected rise in use of these systems. "The reduction in taxes, fees and other revenues to public entities, whether they be cities or states, has forced them to do business differently," Simson says. For cash-strapped regions like the Northeast, full of old bridges and other infrastructure in need of repair, it may make sense to allow a private partner to undertake the repairs in exchange for toll revenue or some other remuneration for a certain time period, he says.
The other reason relates to the uncertainty of the overall financial markets. "You've got these large investors with a lot of cash, looking for a safe place to put their money," Simson says. Investment in roads and bridges and even in institutions that bring a guaranteed income can be attractive, he adds.
For the city, the attraction to structuring its project via a P3 design-build was more than about cost, Smarr says. The project was also about getting state-of-the-art schools and making good use of development space.
The city agreed to an as-of-right development, and so the project was not open to review by the city planning commission or city council. "From the city's viewpoint, even though we are building an as-of-right project, it will have a big public benefit—two brand new schools that are going to be year-round resources" for the community as they will likely serve as venues for local events and services after school hours, Smarr says.
"Most public schools are two, three or four stories and don't use all their development rights," Smarr says. "But this [project] offers strategic opportunities."
The as-of-right feature would have sweetened the deal for many developers. However, WWG would not have entered into the bidding process if it "had no confidence that there would be a single point of contact on the city side responsible for the project, and [if it had not] enjoyed the strong support of the chancellor and mayor," says David Lowenfeld, executive vice president of WWG.
"A notable part of this project is that there is a substantial non-school portion," Lowenfeld says. This was a strong selling point in getting the attention of major architectural firms. The mixed-use space "offers a chance to build an iconic tower that will be an important addition to New York City's skyline," he says.
WWG broke ground on the site last year. The 12-story school superstructure is now complete, with the building envelope about 90% done, says Michael Gordon, WWG construction director. "We delivered a core and shell space to Whole Foods with power and plumbing tie-ins on November 1," he says. Whole Foods will do its own interior fit-out.
"If there is one thing different about this school from others, it's the facade system," Gordon says. "We used a metal panel system for the entire building, which schools typically don't use on their standard specs. We had to get approval to do it." The system is superior to brick and mortar for several reasons, including that it eliminates water penetration and does not need to be re-pointed, he says.
The schools also contain a "fairly elaborate" building management control system that allows the Dept. of Education to monitor mechanical systems off site. Use of such systems is fairly new for the city, Gordon says.
Such details contribute to the city's eagerness to structure more projects this way, Smarr says.
ECF did not do any projects from 1980 through 2005. "To have a P3, the private sector has to be ostensibly assured that there's stability," he says. But during those 25 years, "there had been so much turmoil in the old Board of Ed that investors didn't want to do any deals," he says.
Today, Smarr says that has changed and "people need to know that the school system and city are a credible investment partner."