The need for critical infrastructure is creating new opportunities.
- Infrastructure financing remains problematic for small and mid-sized cities.
- Currently 32 of all 50 states are currently authorized to enter into P3 agreements.
- States and municipalities are looking at bundling infrastructure projects
Small and mid-sized cities are increasingly looking to the private sector to finance much-needed infrastructure projects, even though navigating the complexity of public-private partnerships and attracting investors remains difficult.
“The billion-dollar projects we’re talking about today, most cities can’t conceptualize what that means in terms of putting a project forward and finding private partner that is interested in investing,” Little Rock, Arkansas Mayor Mark Stodola said at the 10th Annual CG/LA Leadership Forum. “P3s are very exciting to think about but very complex and difficult to size.”
Stodola noted that cities such as Little Rock and states have historically shouldered the burden of delivering infrastructure because the federal government has been more focused on addressing short-term goals.
“What I find fascinating is that the federal government is just reacting to disasters,” he said. “Whether it’s forest fires, or flooding, all of these things are after the fact: they’re not building the infrastructure to prevent things like this from happening.”
Part of the problem, Stodola said, is that only 32 of all 50 states are currently authorized to enter into P3 agreements. He added that states and local governments must also consider the complicated nature of finance, tax, and state structures in order to determine whether projects could be bundled together in order to draw the interest of potential equity partners.
Alina Georgiu, commercial lead at infrastructure fund manager CAMG, said that the size of projects in small and mid-sized cities can be an issue for investors owing to transaction costs for due diligence. She added, however, that investors are not necessarily deterred by smaller projects.
“There are as many investors as people, and they all have different appetites,” Georgiu said. “For a well-structured, well-thought-out project with good partners, I think you will be able to attract investors.”
“THERE ARE AS MANY INVESTORS AS PEOPLE, AND THEY ALL HAVE DIFFERENT APPETITES.” – ALINA GEORGIU, COMMERCIAL LEAD, CAMG, LLC
Notably, CAMG last year launched the estimated $256 million Tri-Pillar listed infrastructure fund, which is focused on assets in North America and mainland Europe. The fund will reportedly target a dividend yield of 4.5%, and an 8-10% internal rate of return.
Kevin Johns CEO of Austin, Texas-based Future Economies noted that small and mid-sized cities can develop new infrastructure while, at the same time, reducing poverty. He during the panel advocated the use of economic incentives for the private sector, such as tax breaks, in return for public goods such as mentoring lower-income youth.
“If we’re going to transform cities need a full court press on additional access to capital, more online courses, shark tank programs and others that bring small businesses to places like these,” Johns said.