News analysis: JPMorgan eyes ‘sensitive’ infra assets

In becoming the $452m winning bidder for Pittsburgh’s parking auction, JPMorgan Asset Management’s infrastructure group continues a move toward assets whose performance is more dependent on the health of the overall economy, such as ports, airports and transportation assets.

Infrastructure investors should consider allocating more of their money toward relatively cyclical, demand-sensitive assets that are likely to benefit the most from an uptick in economic activity, according to Mark Weisdorf, chief executive officer of JPMorgan Asset Management’s infrastructure investments group.

Weisdorf’s views are behind JPMorgan’s $452 million winning bid for the city of Pittsburgh’s parking system.

“In discussions with our investors earlier this year, we suggested that, as we’ve moved through the worst part of the recession and are starting to see signs of economic recovery, now may be time to  invest in assets that have more economic sensitivity,” said Weisdorf.

Together with Connecticut-based parking operator LAZ, JPMorgan beat out Swedish private equity firm EQT and private equity firm The Carlyle Group’s infrastructure team to win a 50-year concession for Pittsburgh’s parking garages, lots and on-street meters.

These facilities fit JPMorgan’s desire to invest more in line with the economic cycle because “parking assets do have greater economic sensitivity than regulated utility assets”, Weisdorf said.

Prior to the bid announcement, Weisdorf’s portfolio had already included eight investments in electric and water utilities and contracted power assets across the US and UK. More economically sensitive investments included interests in two airport stakes in Australia and a ports business in Spain, Dragados SPL. The Dragados deal, disclosed in a regulatory filing last month, is scheduled to close in late October. Besides these, the portfolio did not include any economically sensitive assets in the ground transportation sector, such as toll roads or parking garages or meters.

We're seeing lots of appetite from banks willing to lend

Mark Weisdorf

JPMorgan had looked into acquiring such parking assets before. The firm participated in the “very, very early” stages of the Chicago parking meter auction in 2008 and looked “very hard” at Chicago’s underground parking in 2006, Weisdorf said. Ultimately, JPMorgan didn’t pursue either opportunity. Weisdorf’s team also looked at a similar deal in Harrisburg in 2008.

Pittsburgh was different, he said, because it had “the right set of characteristics”. The 11 garages being leased aren’t “monopolies”, Weisdorf said. But they are located in the city’s congested downtown area, where parking is in high demand. Meanwhile, the 7,012 on-street metered parking spaces can only be operated by the city or, in this case, a city-selected company operating them under a “reasonable and robust” concession, Weisdorf said.

“We think those characteristics . . . allow for relatively predictable revenue and cashflows from the parking operations. And it’s that relative predictability that’s an important feature of the infrastructure investing,” he added.

The predictability may also be helping make the deal more bankable to lenders. Weisdorf said his bidding consortium is in discussion with “several” banks to provide loans toward the $452 million bid. The debt financing is now close to being finalised.

“We’re seeing lots of appetite from banks willing to lend,” he said.

JPMorgan's bid expires 1 November. Prior to 1 November, the deal will have to gain approval from the Pittsburgh City Council and the Pittsburgh Parking Authority.

Weisdorf declined to predict whether the deal will go through. But he does think “the likelihood of approval is much higher because of the way the process was run.”

In a first for this type of transaction, the city published the concession agreement for the deal prior to issuing a request for final proposals. The public was then invited to provide input on the agreement, which was also analysed and amended by city council prior to the final bidding process.

“We think it was a healthy process that increases the likelihood that when the process comes to an end and the preferred bidder is named that . . . the concession agreement will be approved and the transaction will come to financial close,” Weisdorf said.

“Anything that reduces risk is a good thing,” he added.