A consortium developing a rental car facility at Newark Liberty International Airport reached financial close last week on a PPP that has a “unique” financing structure and could serve as a model for facilities at other US airports, consortium member Conrac Solutions said in a statement.
Under the terms of the agreement, the Port Authority of New York and New Jersey, the public agency procuring the project, will not make an availability payment for the 35-year length of the contract. Instead, the project’s investors – Related Fund Management, Fengate Asset Management and Conrac Solutions Capital – will deliver the $500 million project assuming the entire revenue risk.
According to Mark Pfeffer, chief executive of Conrac Solutions, the project is being financed with 20 percent equity and 80 percent debt. The latter is being provided by a consortium of banks led by MUFG, CIBC and National Bank of Canada, according to a statement.
The financing the equity partners provide will be repaid solely out of proceeds received from the customer facility charge applied to rental car transactions. The $7 charge will increase by around 2 percent per year for the length of the contract, Pfeffer explained.
Martin Klepper, chairman of Fengate Asset Management, told Infrastructure Investor that the project’s investors are taking on additional risk at the prospect of better returns.
“Taking revenue risk, if there’s significant growth, there’s an opportunity to earn a better return, provided the deal’s structure attributes this upside to the parties exposed to the revenue risk,” Klepper explained. “But there’s also the downside which is if rental car usage drops off, revenue will be lower.”
Klepper said he believes the deal is attractive because of the demand rental car companies operating at Newark say exists for such an asset, as well as Conrac Solutions’ experience developing other consolidated rental car (ConRAC) facilities at airports. These include the Ted Stevens Anchorage International Airport in Alaska and the Austin-Bergstrom International Airport in Texas.
The project, which is expected to be completed in 2023, calls for the construction of a 16.65-acre site near Newark that will feature nearly 3,000 public parking spaces and over 3,300 rental spaces managed by 10 rental car brands under one roof, according to the statement.
For the Port Authority, eliminating an availability payment reduces risk the public sector agency is exposed to and frees funds for other investments, a deal structure that could appeal to other government entities considering private sector help in paying for infrastructure, Klepper said.
“The model could certainly be applied to other airports, but it does require an airport that has a very robust and significant history of rental car use in a metropolitan area that is expected to maintain or grow economically,” he explained.
Last September, a consortium including Fengate won approval to build a car rental facility at Los Angeles International Airport under a 28-year lease agreement. That PPP is secured by an availability payment, Klepper said.