Chicago redux

In 2004, Chicago pioneered the first-ever toll road privatisation in the US, leasing the Chicago Skyway to a consortium teaming Cintra and Macquarie Group in a deal that helped to make clear the potential of public-private partnerships (PPPs).
 
In 2008, Chicago embarked on the first-ever on-street parking privatisation in the US, leasing its downtown meter system to a consortium led by Morgan Stanley Infrastructure in a deal that helped to establish PPPs as a potentially ‘politically unpopular’ business.

One year later, Chicago tried to conduct the first-ever airport privatisation in the US, attempting to lease Midway International to a consortium led by Citi Infrastructure Investors  (CII) in a near-miss deal that helped to establish PPPs as unpredictable in terms of their outcomes.    

The recently created Chicago Infrastructure Trust (CIT) marks the latest PPP-related effort from a US city recognised industry-wide for its well-documented engagement (albeit poorly understood and wrongly maligned) with private investment in public infrastructure.

Chicago’s decade-old PPP rigmarole has seen the Windy City labeled as everything from failed test tube experiment to willfully complicit dupe.

Regardless: in 2012, Chicago reinforced its legacy for groundbreaking privatisations in the US. This time, it’s an industry-backed deal to establish PPPs as a politically and financially viable business.

The CIT is effectively an infrastructure bank – something much-discussed at the national level in the US, but now delivered at the city level – that will seek will seek to channel over $1 billion in private capital to develop Chicago’s infrastructure.  

THE TIME HAS COME

“This is an idea whose time has come,” enthuses James Hooke, speaking shortly after the March 1 city hall announcement about the launch of the CIT, which was made with support from former President Bill Clinton.

Hooke is chief executive officer of Macquarie Infrastructure Company, and the Australia-based group has a long-running relationship with the Windy City. Macquarie steered the 2004 Chicago Skyway deal, while Macquarie District Energy Holdings is the leading chilled water service provider to the city.

Significantly, Macquarie Infrastructure and Real Assets (MIRA) is a private investor in the CIT, committing a reported $200 million to a total $1 billion, alongside CII and JP Morgan Asset Management’s (JPMAM) infrastructure investment group.

Hooke praised Chicago Mayor Rahm Emanuel (a man with “a reputation for getting it done”). “Someone had to move first,” notes Hooke. “No one has actually gone out and done it [before]. They’ve moved from the realm of abstract, theoretical discussion.” 

Jason Zibarras echoed this sentiment. “That’s the big difference here,” says Zibarras, chief investment officer of JPMAM’s infrastructure group. “Everything else is an idea; they’re putting it into action”.

Zibarras cited a “huge” market need for infrastructure investment in Chicago, while Emanuel has vowed to revisit a privatisation of Midway. Meanwhile, Holly Koeppel, co-head of CII and a veteran of energy infrastructure, said the first initiative for the CIT – a $225 million energy efficiency project – was “very sensible”.

“It can have a relatively quick turnaround,” she notes. “It’s not just socially responsible, it’s economically attractive. They picked the right project.”

Colleague and CII co-head Felicity Gates agreed. “What they are doing is just the initial project. They have deliberately not announced more,” Gates observes. “They are trying to get it right – start with a single project, move it through, prove up the model, then move on.”

Hooke described the energy efficiency project as “politically clever,” and noted early success will prove crucial. As always, Chicago will be closely watched – both stateside and internationally.  

“A lot of the country is looking at this,” Hooke says. “On the investment side, we think there will be pension fund interest, and I think internationally people are intrigued—the US has taken so long to develop a PPP culture.”

“This is clearly a very important development,” Koeppel says. “On a scale of one to 10, its score will continue to go up as they achieve more. It’s a model that can work. But it has to be implemented.”