The dailypress.com website is reporting that an offer may be forthcoming this week from CenterPoint properties to privatize the Port of Virginia.  Their sources indicate that an offer may be delivered to Virginia Transportation Secretary Pierce Homer this Friday.  Although the Port was not actively soliciting bids, privatizing their operations is something they have been examining after Del. Harry “Bob” Purkey, R-Virginia Beach organized a special committee to vet the option.  It could mean a significant upfront payment from CenterPoint which could help to plug the budget gap and fund other necessary transportation improvements.  

However, privatization comes with several big question marks.  As it stand right now, Virginia International Terminals operates the Virginia terminals.  They are a state owned organization and are currently focused on increasing the amount of cargo that flows through Virginia.  If CenterPoint were to operate the terminals, that focus may change to protecting their financial bottom line.  However, the two are more closely aligned than you might expect.  Port rankings are typically done by TEU volume (VIT’s goal), and shippers follow activity (more customers for them to work with, choose from and steal) and that flows through to CenterPoint’s bottom line.  So, the higher Virginia ranks the more business it will do and (presumably) the more profit it generates for CenterPoint.  Everyone wins.  If Virginia does agree to do this, I would suggest they structure significant rent penalties for CenterPoint if TEU volume targets are not met.

CenterPoint is not new to the Virginia market as the Chicago based developer recently won approval last month for its $350 million industrial park in Suffolk.  Although they are majority owned by CalPERS, I am not familiar with their terminal operating capabilities.  They may be exceptionally qualified to operate a port terminal, I’ve just always known them as an industrial real estate developer.  

If the proposal does arrive as expected, I am sure it will spawn a lively debate.  It will be interesting to see both sides present their arguments in the coming months.  I’ll keep you posted…

Last week the Oakland Board of Port Commissioners approved a new partnership agreement for its Outer Harbor berths 20-24.  Under the first of its kind agreement, the Port of Oakland will partner with Ports America Oakland (itself a partnership between Ports America and Terminal Investments Limited) to develop and operate the berths.  Ports America will invest approximately $2.5 billion in the build-out of the terminal in exchange for the exclusive right to operate the terminal for a 50 year period.  

This is public-private partnerships at its best and truly is a win-win situation for both parties.  The partnership is expected to generate over 6,000 jobs providing over $100 million in direct personal income.  In addition, the Port of Oakland received a one-time, upfront fee of $60 million and will receive annual rent of approximately $19.5 million.  This will allow them to retire some existing bonds, saving almost $3 million a year of debt service.  Ports America gets access to some very scare waterfront land, in an established port location and will enjoy the full marketing efforts of the Port of Oakland.

Finally, in addition to the innovative financial structure, the new terminal will be one of the most modern and environmentally responsible in the world.  Ports America has indicated that they will utilize several of the environmental and operational best practices to reduce per TEU carbon emissions by as much as 90%.  Some of their strategies include using electric stacking cranes, ship-to-shore power, and scheduled pick-up and delivery times.  All of these will help to contribute to a terminal that is not only financial successful, but also a good neighbor to its community.

Let’s hope we see more of these partnerships in the future.

The Link: LINK

The Story: The Port of Oakland is soliciting proposals from interested private groups to provide “the master operation and maintenance, and long-term design, construction and finance of facilities of approximately 168 acres to support and enhance maritime activity”.

The Analysis: The opportunity in question is the redevelopment of a former Navy facility on land which is currently owned by the Port of Oakland.  As I understand it, the Port would like a private group to come in and sign a 30-year master lease on the parcel, to begin January 1, 2010.  The private group would then design, construct, finance and operate the facility.  At the end of the 30 year lease, the property and it’s improvements would revert back to the Port of Oakland.

The Public Private Partnership (PPP) idea is an interesting one and has been used very successfully internationally.  Several domestic ports are currently considering the structure to finance new capital programs.  However, the program is still young in the United States and there are issues that need to be worked out.  One issue that stood out to me with the Oakland proposal was the short duration (30 years).  I would want a longer horizon to amortize down my improvements.  This will be a significant capital outlay and a strong selling point for Oakland.  30-years seems a little too short.