Public Works Director Craig Beck on P3 Financing of Long Beach’s Civic Center

Craig, update our readers on the status of the City of Long Beach’s $520 million Civic Center project—specifically, on the value of utilizing P3 to build a world-class civic center and provide social infrastructure in Long Beach for the next century.

Craig Beck: This is our first opportunity to build a new City Hall in the last 40 years, and our first opportunity to engage the private sector and use our combined creativity to achieve our goals. From my position, it’s a once-in-a-career project to be involved in.

In our current City Hall, the city was faced with a building that is seismically deficient and will have a massive failure in a large earthquake event. We knew we needed to either fix this building or build a new one. When we started comparing the costs of those options, they were essentially the same, because of offsite leasing and other components.

Under the previous redevelopment agency, we had essentially done a land-swap with the state: The state took some redevelopment land to build a new courthouse, and the City took the site of the old courthouse to build our new City Hall and Port Administration on. We were lucky to be partnered with the state of California in that way as they built the new George Deukmejian Courthouse in Downtown Long Beach. We learned much from watching that Court House project utilize P3.

The swap left us with a 5.8-acre site that could be converted to a private development. But we felt that whatever was built there needed to be part of this overall planning process—and one of the quickest and easiest ways to do that was to engage the creativity that we often find in the private sector: Let them maximize and monetize the value of our current City Hall property and re-envision it as, likely, a residential, retail, and hotel development site.

We were lucky to have great partners in Plenary Edgemoor, Clark Construction, SOM Architects, and JCI. With all these pieces in the soup, we came up with what I feel is a fantastic project—not only for the city, because we’re getting a great new building, but also for the whole town, because we’re really going to reenergize this area.

Currently, the Long Beach Civic Center block is an old-style, 1970s planned superblock that includes a library, City Hall, and a public safety building. It doesn’t allow for pedestrian or vehicle access. As a result, especially in the evening when the workforce goes home, it feels like a big hole in the middle of Downtown—a darkened area that people have to walk around to get from one side to the other. One of the things I’m most excited about in terms of reenergizing that space is breaking the area up into three blocks, and adding residents to it through the private development. That will reengage and reinvigorate this valuable real-estate in our Downtown, and the P3 process has made it possible.

What has utilization of the P3 process allowed the city of Long Beach to accomplish that couldn’t be done otherwise; and, how instructive has the experience been for other projects now being planned in Long Beach—as well as for other cities in metropolitan LA? 

We’re one of the first, if not the first, municipal government in California to utilize a P3 in this manner. It has garnered a lot of attention. We’ve had people from Los Angeles and Napa, California and Charlotte, North Carolina. You could certainly say that we paved the way for projects like these. And as with anything new, we do have some learning experiences to share.

I’ve done a lot of construction in my career, and I’m very familiar with the traditional way of thinking about what you need, designing it, bidding and procuring someone to build it, and then turning it over. That process, while it works, does have some flaws. One thing that I really value about this P3 model is that JCI, who is going to be operating the building for 40 years, has been involved throughout the entire process.

In this model, I have an operator at the table when making design decisions with the architect and contractor. When we talk about design evolution, the contractor can say, “X is going to be costlier than Y.” That allows us to value engineer as we design the project. And it creates a real incentive for the developer to invest in, for example, energy efficiency in the overall building footprint and building operations. It may be a little more expensive—these are not the cheapest HVAC systems you could put in a building—but in the long run, they’re going to save a lot of money.

I’d point to that as a really valuable asset for any project with a 60 to 90 year life, like a city hall or a large office building. It was a great dynamic to see, and something I hadn’t experienced before. This process has been invaluable for us.

What are you able to share about the relative costs of using the P3 versus traditional means of building project finance?

Honestly, this was a concern when we were putting together the financing package, and it is certainly something for others to be aware of. In our evaluations, we saw two possible paths: One was to finance the project ourselves, and the other was to let the private sector finance it.

Typically, as a municipality, we receive cheaper money than the private sector, because ours is tax-free. But it just so happened that, at the moment we went out to market, the marketplace was able to match the interest rates that the city would have received. There is minimal, if any, difference between the financing costs that the city would have had for a similar debt structure, and what the private sector was able to get on this building. 

Are you saying that in your experience, the P3 made a mixed-use development opportunity more practical than it would have been if financed more conventionally? 

Yes. Another aspect of this is timing. The value of doing a one-developer Master Plan project is that the residential units are going to get built much faster than they would be through a traditional process. If the City had financed, designed, built, and then occupied the City Hall, that process would likely have taken twice as long as what we’re experiencing here. Then when the City vacated the current City Hall, there would be another process for the disposition of that property. Again adding time to building and occupying the private units.

If your overall project includes a private-sector component, it makes a lot of sense to do all of those things together. Because the privately held development is moving more quickly, the city is going to receive property-tax revenues that we wouldn’t otherwise have gotten in the same timeframe. In terms of the overall finance package, we’re making money off this land much more quickly than we would have under a traditional process.

Lastly, Metro’s M monies are about to be expended to upgrade the Blue Line, which runs down the southern spine of LA to Long Beach. Address, as the City of Long Beach’s Public Works Director, the significance of this investment? 

The city of Long Beach received funding from Caltrans to change all the light timing along the Blue Line. Right now, we have a car-first priority in our city, where the Blue Line stops for the cars, which stop at a red light just like anybody else traversing Long Beach Boulevard. This project will change the lights to train-first priority—now, the cars are going to stop for the train. That is likely going to shave 10 minutes plus off the trip between Long Beach and LA.

Why is this important? We’re finding that, from a real-estate perspective, it’s a more attractive financial proposition to live in Downtown Long Beach, by the ocean, than it is to buy similar property in Los Angeles—especially when the Metro Blue Line can take you right into the heart of Downtown LA. We’re starting to see different real-estate decisions being made by people who work in LA and want to live in our city. We’re also seeing transit-oriented development that is going to help the city in the long run. I’m working to streamline our mobility options to encourage this trend.