Legislative Review of the Public-private Partnership for the I-95 Travel Plazas

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Helen Montgomery
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1 Legislative Review of the Public-private Partnership for the I-95 Travel Plazas Presentation to the Senate Budget and Tax Committee House Appropriations Committee Department of Legislative Services Office of Policy Analysis Annapolis, Maryland February 2012

2 Purpose On January 23, 2012, the Maryland Transportation Authority (MDTA) submitted notice to the budget committees that it reached an agreement with Areas USA MDTP LLC (Areas USA) to finance, redevelop, operate, and maintain the two travel plazas that MDTA owns along I-95. The budget committees have 30 days to review and comment on the proposed agreement. On February 22, 2012, MDTA plans to take the agreement to the Board of Public Works (BPW) for final approval. 1

3 Existing Facilities MDTA owns two travel plazas along I-95: Chesapeake House, built in 1975, is located in Cecil County; and Maryland House, built in 1963 and expanded in 1990, is located in Harford County. Both facilities are in need of replacement, and their physical design and layout are inefficient. 2

4 Goals of the Project MDTA identified the following key goals for the project: obtain new or like-new facilities to replace the current travel plazas; ensure that the facility design and operation provide a positive customer experience; and provide a fair return to the State and provide for the transfer of the facilities in satisfactory condition at the end of the term. 3

5 History On November 12, 2009, MDTA provided notification to the budget committees of its intent to issue a request for proposals (RFP) for the project. On March 25, 2010, MDTA issued its first RFP for the project. In November 2010, after seven RFP addendums and numerous changes to the proposed schedule, MDTA cancelled the RFP. At over 700 pages, the first RFP had become overly prescriptive and looked more like a procurement than a public-private partnership. On June 27, 2011, MDTA issued a new RFP. In November 2011, proposals were submitted. 4

6 The Private Partner Areas USA is a newly created company formed for this project. Its parent company is Areas S.A., who has been providing food, beverage, and retail services to the travel industry for over 40 years. Areas S.A. is currently in over 70 airports and 160 service plazas worldwide, including 11 U.S. airports and the Florida Turnpike. Its annual operating revenue exceeds $900 million, it has no debt, and has an available credit line of $120 million. Areas USA has partnered with about a dozen firms, many of them Maryland-based, to provide design, construction, and operation of the project. The lead architect is Ayers Saint Gross, Baltimore s largest architectural firm, and the construction contractor is Clark Construction, headquartered in Bethesda. 5

7 Terms of the Agreement Areas USA will finance, design, construct, operate, and maintain the two travel plazas on I-95 for 35 years. The facilities must be open 24 hours a day every day. During the reconstruction phase, at least one travel plaza must be open at all times. Reconstruction must be complete by Detailed performance measures are included in the contract and monthly visits by a third party mystery shopper and regular review meetings with MDTA will ensure these standards are met. Failure to meet standards may result in contract default. The facilities must have at least 5 years of useful life remaining at the end of the contract term. 6

8 Facility Amenities Maryland House Existing Proposed (Near Term) Expansion (Long Term) Primary Building (in Square Feet) 1 33,500 39,225 47,925 Concepts (Food/Retail) 7/5 6/8 N/A Seating (Indoor/Outdoor) 409/50 756/160 N/A Restrooms (Stall/Urinal/Sink) 2 62/20/26 68/28/46 N/A Parking (Car/Truck/Bus) 509/56/24 515/60/30 575/71/38 Fuel and Convenience Store (in square feet) ,700 N/A Fueling Positions (Car/Truck) 4 48/8 40/4 50/6 Chesapeake House Existing Proposed (Near Term) Expansion (Long Term) Primary Building (in Square Feet) 1 28,000 29,845 39,395 Concepts (Food/Retail) 6/4 6/5 N/A Seating (Indoor/Outdoor) 303/40 325/80 N/A Restrooms (Stall/Urinal/Sink) 2 37/14/23 56/20/36 N/A Parking (Car/Truck/Bus) 352/98/16 360/78/30 420/100/34 Fuel and Convenience Store (in Square Feet) 3 1,484 4,300 N/A Fueling Positions (Car/Truck) 4 48/8 24/4 32/6 1 Usable space. 2 Includes family restrooms. 3 Existing column contains both existing facilities; Proposed (near term) column is for one new building with more amenities. 4 Installation of high speed fueling equipment requires fewer fueling positions. 7

9 Financial Considerations Areas USA will finance the reconstruction of the travel plazas using its own equity. The estimated cost of reconstruction is $56 million. A revenue-sharing agreement ensures that MDTA receives annual payments over the life of the contract. The revenue-sharing agreement provides MDTA a greater percentage of gross sales as sales increase, ranging from: 10-15% for travel plaza gross sales; $0.05 to $0.11 cents for each gallon of fuel sold (gas and diesel); 9-11% of convenience store gross sales (except tobacco sales); and 2% of tobacco sales. MDTA receives an upfront $3 million payment. 8

10 Financial Considerations (Cont.) Required capital re-investments in years 8-10, 15, 16, and 20. Required monthly deposits into an Annual Maintenance Escrow Account. Areas USA improved its initial offer by more than $65 million in additional revenue payments to MDTA through the negotiations process. The agreement has a total projected value to MDTA of $577 million to $662 million, which translates to a total net present value of $272 million to 308 million. 9

11 The Project Meets Many Broader State Policy Goals Areas USA has a self-imposed commitment to achieve 27% minority participation in design and construction work, and two minority business enterprise franchisees will provide the fuel and convenience store services generating over $300 million in gross revenues over the term of the contract. Both travel plazas will be constructed to Leadership in Energy and Environmental Design (LEED) Silver standards. Prevailing wage rates for construction work will apply. 10

12 Impact on Jobs Reconstruction of the facilities will generate approximately 400 construction jobs beginning this year. Many of the existing private sector employees at the travel plazas may be hired by Areas USA. Employees will be temporarily displaced during reconstruction periods. During reconstruction periods, Areas USA has committed to provide newsletters to active and displaced employees to provide construction updates and conduct job fairs and offer unemployment services for displaced employees. MDTA employees that currently provide maintenance services at the travel plazas will be relocated to other facilities, primarily to provide staffing for the opening of the express toll lanes on I

13 Timeline February 22, 2012 Review and comment period by the legislature ends; agreement goes before BPW for approval. September 2012 Areas USA becomes the new concessionaire at the travel plazas; Maryland House closes for reconstruction. December 2013 Maryland House reopens for service; Chesapeake House closes for reconstruction. No later than September 2014 Chesapeake House reopens for service Lease term ends. 12

14 Recommendation The Department of Legislative Services (DLS) has reviewed the proposed agreement and numerous supporting documents. DLS finds that the agreement adequately covers a variety of contingencies, adequately protects the State, and provides a good value to the State. DLS recommends approval of the project. If the budget committees concur with the DLS recommendation, a draft letter is available for the Chairmen s signature. 13

Maryland Department of Transportation The Secretary's Office

January 2, 2013 Maryland Department of Transportation The Secretary's Office Martin O'Malley Governor Anthony G. Brown Lt. Governor Darrell B. Mobley Acting Secretary Leif A. Dormsjo Acting Deputy Secretary