The market for private investment in U.S. infrastructure is both alluring and frustrating. It is the greatest emerging infrastructure market opportunity, and yet for all its promise, it remains a paradox. As the epicenter of global capitalism, many expected private investment in U.S. infrastructure would be a no-brainer.
What global infrastructure investors have learned is that the United States’ political and governing institutions and traditions — state, local and federal governments; transportation authorities; regional oversight bodies; environmental regulations; and so on — are quite different than what they are used to.
Private investment is making its way into the market; it’s just that the hopes of massive capital flows and multibillion-dollar funds snapping up airports, roads and pipelines have yet to materialize.
Instead, that expectation has met an American procurement system that operates differently than others and public sector agencies that were not prepared to absorb the waves of private capital taking aim at its infrastructure assets.
As a result, many toll road and parking lot deals have been put on hold, airport buyouts stalled, and in the water sector — where thousands of small local authorities hold the assets — the fragmented market has so far proved too challenging to invest any substantial amounts of capital.
About the only U.S. market private infrastructure investment has found inviting is the energy sector, where most assets are in private hands and the sector has a history of private investment.
Despite the frustrations, there are signs that the market for private investment is in fact maturing. Several new entities are forging ahead in search of investment vehicles and structures suitable for public sector and private investor objectives.
Chicago has launched the Chicago Infrastructure Trust (CIT), which is fleshing out its first project — Retrofit One, the initial $51 million piece of a larger Retrofit Chicago program that is expected to invest more than $200 million in energy retrofit projects.
Retrofit One is estimated to save the city about $4.8 million annually by retooling public school buildings and other city properties. CIT issued an RFQ in January and received six responses in March. The CIT is still sorting out how to finance the project
In New York, meanwhile, the state has created the New York Works (NY Works) infrastructure fund, a $15 billion publicly and privately financed vehicle meant to invest in bridges, flood control, water systems and energy retrofit projects. Its initial investments — $1.2 billion for roads and bridges — were approved in the first quarter of 2012.
Most recently, the states of California, Oregon and Washington and the Canadian province of British Columbia banded together in November 2012 to form the West Coast Infrastructure Exchange. Similar to CIT and NY Works, the West Coast Infrastructure Exchange (WCX) is aiming to attract public and private financing and investment for infrastructure projects. In April, the exchange hired its executive director, Chris Taylor, co-founder and former head of Portland, Ore.–based Element Power, a wind and solar power company.
“It’s very early days, but we are indeed starting to screen projects and look for opportunities to engage with states and local jurisdictions,” Taylor says. “We’ve been asked to look at [water storage development] by project sponsors and agencies. It’s been a long time since new projects of that nature have been built,” he adds.
WCX also is looking at energy efficiency project out of the gate. “Oregon, Washington and California each have energy retrofit programs at various levels,” Taylor says. “There is probably a broader and more strategic way to bring that type of program to scale across the region that would accelerate those investments and achieve those savings quicker.”
Private investment in U.S. infrastructure may not have progressed as quickly as some anticipated it would, but people haven’t given up and the market is developing.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
