Turning the tide

US ports have traditionally been the turf of local governments, but last month two deals – one reaching its conclusion, the other just getting started – showed that the tide may be beginning to turn towards long term private investment.

On the west coast, Ports America, a stevedore owned by infrastructure fund Highstar Capital, won a 50-year concession and lease agreement for five berths at the Port of Oakland in California valued at $700 million. Over on the east coast, CenterPoint Properties, a California Public Employees’ Retirement System-backed real estate company, submitted an unsolicited proposal for a 60-year concession agreement with the Port of Virginia, in a deal worth $8.9 billion.

Both are landmark deals that could galvanise the industry going forward. Highstar’s contract with the Port of Oakland is a first of its kind for US marine terminals, which are usually leased for much shorter periods and with far fewer capital improvement requirements. CenterPoint’s bid is the first proposal to privatise an entire US port’s operations. If Virginia gives its approval, it could launch a formal bid for the port.

The bid also highlights an important trend: more real estate investors are entering infrastructure. If CenterPoint succeeds, other real estate investors and developers will think more seriously about entering the sector.

But why all the interest in ports? America’s ports have been suffering from plummeting container traffic due to the economic crisis. Volumes at the country’s third busiest seaport, Oakland, tumbled 6.4 percent last year.

For local governments that own the ports, that means funding shortfalls and budget cuts. For investors, it means buying opportunities. “Before the crisis started there were very serious issues of port congestion in the [neighbouring] Port of Long Beach… once the economy recovers, those issues are still going to be there and there needs to be a solution and that solution is going to be the Port of Oakland,” said Chris Lee, Highstar’s founder and managing partner.