Denver City Council approved a $1.8 billion public-private partnership with a consortium led by Spanish developer Ferrovial that will modernise the city’s airport.
The council’s 10-2 vote in favour of the project greenlights Denver’s first major PPP of a government-owned building. Denver International Airport officials said in a statement that private-sector participation in the upgrades will provide construction efficiency and transfer risks to the developers.
Great Hall Partners, the Ferrovial-led consortium that also includes Saunders Concessions and the Earvin ‘Magic’ Johnson-Loop Capital joint venture JLC Infrastructure, has agreed to a 34-year contract to modernise the 1.5 million square foot Jeppesen Terminal.
The three main areas of improvement include consolidating the airline ticket counters, relocating the Transportation Security Administration screening counters, modifying the baggage handling system and redesigning the shopping and dining areas in the terminal.
The first four years of the contract is a design and construction phase. Construction is scheduled to begin in 2018, and the remaining 30 years is an operation and maintenance agreement.
Project financing includes $650 million-$750 million for design and construction, and $120 million to “accommodate unexpected issues”. Great Hall Partners said it would invest $378 million and be paid back over time through payments from the airport and 20 percent of concession revenues. DIA will reimburse the consortium a total $1.2 billion for the duration of the maintenance agreement and will keep 80 percent of concession revenue.
Ferrovial’s profit for its initial $82 million equity investment will be 4.8 percent, but could be closer to 10.8 percent based on concession performance, according to DIA estimates.
Denver’s airport authority first issued a request for qualifications in January 2015. Great Hall Partners was chosen last July, but Denver City Council took over a year to review the project, resulting in Tuesday’s approval.
State and local governments are increasingly partnering with the private sector to help fund airport upgrades, which can be expensive and complicated projects. Investors consider the assets attractive opportunities that assure long-term cashflows. Some of the US’s largest airports have ongoing P3 projects, such as the $4 billion LaGuardia Airport development and the $5 billion Los Angeles International Airport modernisation.
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