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Architecture & Design

Ralph Hawkins: Alternative Funding Sources for New Construction

After the pull-back of commercial lending, and with stimulus funds drying up, dramatic cutbacks are now expected in the federal government sector. This will continue to put a damper on new construction projects. Alternative funding sources exist, but they're the exception. One opportunity is the recently passed Public-Private Partnership Act, where funds traditionally used for infrastructure may now be available for education, aviation, and healthcare projects.
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Ralph Hawkins

I have always heard that “when you have extraordinary challenges, there are extraordinary opportunities.” I think we’re in historical times with this current economy and, indeed, that phrase certainly applies. As you would think, the economy is a popular topic in the real estate development, design, and construction industry.

All organizations have been impacted. Simply put, projects eventually emerge from funding opportunities, and if those funding opportunities do not exist, the projects do not move forward. First it was the pull-back of commercial lending, and second, after the stimulus funds were committed, dramatic cutbacks are now expected in the federal government sector. Even states and municipalities are reducing capital expenditures due to budget shortfalls. This scenario leaves a reduction of funding for public and private projects in the near future.

Questions arise for the design industry, not so much about 2011, which has been a relatively good year, but about the first two quarters of 2012. With 2012 being an election year, many do not expect Congress to pass additional federal funding for projects after the nation’s negative sentiment towards the ever-increasing national debt. And commercial real estate lending from banks is very low for new construction, when compared to overall real estate lending.

Most lending is associated with the repositioning and acquisition of existing buildings. New construction is not competitive with existing buildings, except where there is a desire for higher accountability for green design, smart technologies, and prime locations. Repositioning and the upgrade of existing buildings appears to be a larger market for architects.

Alternative funding does exist, but it is the exception. Recently, Texas passed Public-Private Partnership (P3) legislation through the Texas Facilities Commission for vertical development. This traditionally has been used for infrastructure, highways and bridges. Now there are opportunities for education, aviation and healthcare projects to potentially receive these funds.

Much like the P3 in Canada and the Private Financing Initiative projects in the United Kingdom, this funding may include financing, design, construction, and/or operations. Although the formal committee assigned to the legislation has not yet met, the current guidelines hopefully will be fully vetted. The big question here is, “How is the funding put together?” Regardless, there are some evolving opportunities.

Firms that want to stay busy and maintain a healthy backlog will have to explore all opportunities of funding of their projects to bridge 2012. We are all hopeful that after the elections, our country will be back on its way to recovery.

H. Ralph Hawkins, FAIA, FACHA, is chairman and CEO of HKS Inc., one of the top five architectural and engineering firms in the United States. Contact him at [email protected]