The inherently collaborative nature of well-designed joint development projects, which are a form of public-private partnership, enables them to generate greater economic value and better social outcomes than traditional project delivery methods.
Our work shaping the procurement of the Potrero Bus Yard mixed-use project seeks to deliver these goals. This project will not just enable San Francisco’s transportation system to support a new generation of battery-electric buses with a state-of-the-art maintenance and storage facility. It will also produce vitally-important affordable housing for residents of San Francisco.
So how does it work?
Transportation plus homes equals innovation
The idea of transit-oriented development is a well-established and growing trend in the USA and around the world. The model in common use places housing and mixed-use development adjacent to or near transportation facilities, each typically occupying their own parcels of land. However, in dense urban environments where land is at a premium, the opportunity exists to create vertically-integrated transit-oriented development.
As the San Francisco Municipal Transportation Agency (SFMTA) was considering rebuilding a 100+ year old bus maintenance and storage facility, in the context of a portfolio-wide assessment, it saw a need to leverage its valuable land assets and an opportunity to innovate. The SFMTA already operated an electric trolley bus fleet from its Potrero Yard site, and it is in the process of transitioning its fleet to battery-electric buses. Buying large, open plots of land elsewhere in the city to accommodate over 200 buses was not an option.
Recognising the potential of clean electric buses operating from a site in a dense urban mixed-use district with a rich history and vibrant culture, the SFMTA worked with the local community and other city agencies to develop a plan to provide up to 575 housing units jointly developed with the newly-reconstructed bus yard. San Francisco is like many cities around the world where housing production has not kept pace with a booming economy and prices have increased rapidly. The plan calls for at least 50% of the housing units to be subsidised for low- and middle-income residents.
Arup’s procurement advisory role
As the SFMTA’s financial advisor, Arup helped structure and shape the project’s procurement strategy to resolve complementary but very different requirements to finance the project’s components based on how each is paid for: the SFMTA will own the new bus facility and will make payments to the public infrastructure developer, whereas housing residents will pay rents to the private housing developer. The strategy we developed establishes:
Infrastructure developer-led procurement that gives SFMTA a single point of responsibility for delivery of the project
Process that ensures competition, innovation, and clarity of responsibilities between the lead infrastructure developer and the housing developer
Predevelopment phase that reconciles environmental and planning approvals, community outreach, and selection of construction contractors for final pricing
Arup is also assisting the SFMTA with market soundings, financial feasibility and affordability analysis, drafting the procurement documentation (request for qualifications, request for proposals, and performance standards), and managing the procurement process. This will culminate in evaluation of proposals and selection of a winning proposer.
PPP: de-risking and unlocking potential
The route to successful housing or transportation infrastructure projects, each separately, are well understood. When these components are vertically integrated, much less so. The project’s joint development approach provides a contractual structure where the two can coexist. The partnership between the SFMTA and the development team allows an orderly process for resolution of complex technical, financial, and legal issues in which risks are sufficiently defined and allocated to enable financing and start of construction. Critically important, the process allows for substantive input from the local community and flexibility to incentivise creativity and innovation.
Wider goals: social value and commercial appeal
By capitalising on two key infrastructure needs – replacement of aging infrastructure and transitioning to a battery-electric bus fleet – and leveraging publicly-owned land, the project will deliver significant social value. The new housing, at least half of which will be designated as affordable, will have good transit access and high sustainability and resilience standards, all aligned with San Francisco’s policy goals.
A key feature of the contractual structure is the recognition of those elements of the new building that will be shared by the bus yard and the housing, and the appropriate allocation of costs and responsibilities not only for their construction but also for their ongoing maintenance. The project agreements will cover how the bus yard is used and maintained long-term, so that both housing tenants and SFMTA employees can enjoy a well-kept building with appropriate segregation of uses. Achieving a functional coexistence of uses is, in turn, an essential aspect of being able to secure financing for each component of the project.