The COVID-19 pandemic and resulting economic downturn didn’t diminish enthusiasm for public-private partnerships, law firm Husch Blackwell reports in its fourth annual trends report on P3s. In fact, 38 P3 projects reached financial close over the 24 months prior to Dec. 31, 2020, the highest total since Husch Blackwell began publishing its Trends Report.
Going forward, data suggest that record levels of P3 projects are in various phases of development. Year over year, there was a 26% increase in new projects entering the pre-launch phase in 2020.
“Early in the COVID crisis, many were worried about how the capital markets and state and local finances would be impacted,” said Husch Blackwell partner Charles Renner, head of the firm’s P3 practice team. “However, it became clear as the year progressed that the public health crisis’s impact on financing was minimal. We saw a tremendous amount of interest in P3 as a project delivery tool across an even broader class of project types. We anticipate that trend will persist after COVID.”
In contrast to the Global Financial Crisis 12 years earlier, credit markets didn’t seize up during the pandemic. “On the contrary, across most categories of lending and credit, 2020 was a record year,” the report states. “The municipal bond market absorbed record levels of issuance late in the year, joining select other categories of debt in tallying fresh new highs. This dynamic proved to be highly favorable to getting more infrastructure projects into the pipeline.”
Supporting these debt levels were two key factors, the report says. The first, largely predictable factor was “an ultra-accommodative Federal Reserve policy” that greased the wheels of money creation, prompting lenders and investors to place capital. Second, and not at all expected, state and local government coffers didn’t take as severe a hit as many imagined. Husch Blackwell cites a report from Nuveen finding that municipal government tax receipts declined only about 1% on average in 2020. Meanwhile, property tax collections increased sharply due to the strong housing market.
The report cites an additional and unexpected piece of good news that arrived early this year. The American Society of Civil Engineers’ (ASCE) quadrennial report card on the health of U.S. infrastructure gave the sector a passing grade for the first time in 20 years.
However, that passing grade was roughly the equivalent of graduating, but at the bottom of your class. U.S. infrastructure earned a C-minus to squeak through with the lowest possible passing mark.
“Additionally, 11 of the 17 infrastructure categories scored by ASCE received a score of D+ or lower, and only ports and rail received a grade higher than the C range,” says Husch Blackwell’s report. “The ]ASCE] report identified a $2.5-trillion funding gap across all types of infrastructure, with approximately half of that total coming from surface transportation needs.”
Throughout the pandemic, state and local governments continued to pursue P3 across multiple project types. These included an array of “vertical” P3s addressing broadband infrastructure, water/wastewater facilities, courthouses, and mixed-use development, among other areas.
Within the higher education segment, interest expanded beyond the traditional student housing projects of recent years, the report says. Several new and ongoing higher education P3 projects were aimed at updating, maintaining, and operating campus energy and water systems.
Pictured: The Port San Antonio Innovation Center, one of a record number of P3 projects to reach financial close in 2019 and 2020.
Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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