Indeed, after the bursting of the great real estate bubble and the economic crisis that was heard around the world, the price it had in the construction, building and architecture sectors was incredible. Of course, another big problem has been challenges with public funding for new schools, libraries, and other civic buildings. Where is that money going to come from?
Also consider the challenges with municipal bonds these days and the cost of insuring against defaulting on such an increase in public debt. Okay, we all realize this challenge and Meredith Whitney reminds us and her prediction that we’ll have 50 to 100 muni defaults in 2011, and it’s a fact that $15 billion screamed out of the muni market after that she made her prediction. And Meredith Whitney is no loose cannon, as she, too, rightly predicted economic collapse.
What can a city do? Well, as some cities, counties and state governments are selling their assets, they often rent or lease the properties in an attempt to shore up their growing financial deficits. Many cities have sold their libraries, parking meter concessions, parking structures, and other property to the private sector for management. Makes sense?
It could, we know that free enterprise can do things more efficiently than government, and we also know that many government agencies have no choice. Consider whether you will have the option of taking a project from architectural design through construction and operation under a contract and agreement with the city, county, state, or other agency.
In fact, there was a very interesting article in the Wall Street Journal (in the architecture section) called “The Public Option: Parks and Libraries Soar” by Julie V. Iovine. It was a great article, and if this topic interests you, I think you should take the time to find it online and read it carefully. The piece talks about several pretty serious real estate projects and public-private partnerships that have been designed and built.
Granted, if a city guarantees the contract for 10 to 20 years, long enough for a commercial company to guarantee its investment, it could save a lot and also forgo higher legacy costs, which is one of the things that is causing the problem: pension funds, unions, health benefits, etc., which in the public sector have multiplied to become an enormous cost and almost impossible to finance.
State governments, counties, and especially cities have no choice but to consider long-term financial strategies going forward. In fact, I hope you will please consider all this and think about it. If you have additional thoughts, comments, ideas or concepts along these lines, please email me, let’s talk.