Private investment in public infrastructure: Maximize opportunities with a measured approach

Amid the surplus of available funding created by the various federal infrastructure bills, there is a sense of urgency to capitalize on these resources before a potential change in administration, and the potential reallocation of any unspent funds. Rising interest rates have thrown a wrench into the marketplace, requiring new strategies to get deals done, as municipalities may be less inclined to enter concession agreements/privatize if required equity returns are adjusted for the rise in rates. Still, municipal owners of assets such as toll roads, stadiums and arenas, and campus housing have recognized the need for sophisticated design and pricing to maximize the value of their assets. They are embracing strategic approaches that align their assets with market demands, optimize revenue streams, and enhance operational efficiency.

Across the country, various states are in different stages of infrastructure program maturity: determining their projects, solicitation, procurement, bringing on partners, developing and delivering projects. In some cases, more legislative authority is needed to support private investment; for example, while approximately 35 states have some form of legislative authority for public-private partnerships (P3s), coverage remains patchy across the country. But once programs do get going and gain traction in terms of legislative authority, they do drive a large amount of activity. The Bipartisan Infrastructure Law (BIL), also known as the Infrastructure Investment and Jobs Act (IIJA), will be an impetus for this. The BIL is designed to drive more investment into critical infrastructure by bringing government monies (loans, guarantees, and grants) into the funding equation.

For both public and private entities looking to enter a P3, the imperative is the same: to structure a transaction that brings the best elements of private-sector finance into public infrastructure projects. This is not merely about securing financial resources; it is about harnessing the power of innovation, acceleration, and risk mitigation that private sector investment can bring. By combining these advantages with available funding, entities can position themselves for a financially feasible and successful project.

The key is assessing and understanding the core competencies – and competency gaps – on both sides of the equation. Each entity must understand where they excel, where their target partner entities excel, and where each needs complementary expertise. Investors must understand what they do better than their competitors, or where they have more information than their competitors, and use that to stand out in the solicitation process. They should also identify areas where external expertise can help bridge gaps, then procure those resources as needed, seeking advisors who have the experience and capacity to help turn challenges into opportunities.

By fostering collaborations and alliances, both public and private entities can tap into a broader pool of resources and best position their projects for successful outcomes.

A notable example of P3s being used to drive top-notch infrastructure is the redevelopment of New York City’s airports. Following the successful use of the first mega P3 at LaGuardia, the Port Authority of New York and New Jersey is now using a P3 model for work at JFK International Airport. By entrusting specific aspects of project execution at JFK’s Terminal 1 and Terminal 6 to external entities, the Port Authority was able to achieve efficient risk allocation and is on track to ultimately welcome new world-class assets. The industry is watching to see if these projects will be completed on budget and on time.

P3 models are not perfect – IT and security issues, for example, tend to be larger components of the upfront costs. But they can yield higher-than-expected returns over the long term for equity investors and deliver lower costs and risk for public entities.

As the infrastructure sector continues to evolve, P3 stakeholders must remain agile, continuously evaluating opportunities and bridging gaps to successfully produce winning partnerships. Being aware of the available funding and collaboration options, and knowing how your entity best fits into those opportunities, can lead to successful infrastructure projects that create value for investors and enhance the public good.

Reach out to our team for more information or to start evaluating your project opportunity.

Chris Livingstone, Principal, Project Finance & Consulting

310.843.8237

Arthur Simonson, Managing Director, Project Finance & Consulting