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LOS ANGELES-If you've been through Los Angeles International Airport recently, you will have noticed that it is undergoing a major overhaul. To transform LAX, the sixth-busiest airport in the world, into a leading world-class airport, Los Angeles World Airports launched a multibillion-dollar airport modernization project made possible by an innovative public-private partnership (P3) with shopping center developer Westfield Group.

Traditionally, of course, building airports has been viewed as a governmental function. But for increasingly cash-strapped state and local governments the ability to call on the capabilities of private real estate development companies for these very complex projects has many advantages. 

Partnering with private real estate developers offers governments creative financing and implementation options for needed infrastructure projects, while allowing them to retain a share of the long-term revenue streams from the projects. An added bonus is that a P3 structure shifts the day-to-day operational burdens from the public agency to a private entity with the technical and operational expertise to run the project most efficiently.

While P3 structures can vary widely depending on the project, applicable laws and the creativity of the parties, fundamentally all P3s are partnership arrangements between a public agency and a private sector entity in which the private party takes on the financial and operational performance of a public project in exchange for a share of the cash flow resulting from the project, which might be in the form of project revenues or guaranteed government payments. The P3 structure thus shares risks and rewards between the public and private sectors, benefitting the general public by creating better public improvements more quickly and cheaply than could otherwise be achieved.

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The gateway to participation in these projects is a formal public bidding process, with a fair amount of political sensitivity since these are usually large, visible and potentially very profitable opportunities.  In the request for proposal process, transparency—i.e., assurance of a level playing field—is important to attract a range of high quality bidders.  For the public agency, it is critical to have a dedicated project team, a community outreach plan that seeks support from all stakeholders and the assistance of the appropriate outside advisers experienced in P3 transactions. 

Similarly, the private developer wanting to play in this arena needs to include team members who are highly sensitive to the many unique and sometimes conflicting pressures on governmental agencies, including community involvement and job creation. The developer's team also needs to include highly credible technical expertise, financial backing and creative ideas to enhance the project.

For Westfield, partnering with LAWA for the LAX project was like winning the P3 World Series.  Dominic Lowe, Westfield's Executive Vice President who managed the LAX bid, says “we are deploying Westfield's global expertise in operating some of the most iconic shopping venues in the world to LAX, and transforming the entire passenger experience.”

Anita Sabine and Tom Muller are partners of the land use and real estate practice at Manatt, Phelps & Phillips LLP. The views expressed in this column are the author's own.