US lagging as infrastructure investment set to soar

A new report issued by the Urban Land Institute and Ernst & Young predicts that allocations to infrastructure will increase five-fold over the next 20 years, but most will not focus on US investments.

US infrastructure development is falling behind other countries due to a disorganised political landscape, according to a new report by consultants Ernst & Young and the Urban Land Institute, a US think tank.

Citing a recent Institutional Real Estate survey, the report said investors committed about $34 billion to infrastructure concessions and projects worldwide in 2010. The surveyed institutional investors currently allocate about one to two percent of their assets to infrastructure, but that allocation could increase to five or 10 percent within 20 years, according to the report.

But the report argues that most of those funds will not benefit US projects because of the “unsettled deal-making landscape”.

Ernst & Young real estate leader Howard Roth said in a statement that a majority of the increased infrastructure allocations could come from US investors. But he said those investors will divert funds to Asia, Europe and Latin America, “because we don’t have our act together”.

“We need to set the right conditions for US investors to keep more of their money here, and we also must attract overseas investors,” Roth said.

Citing statistics from the American Society of Civil Engineers, the report says that the US needs about $2 trillion in new infrastructure investment over the next five years. But it argues that the US is too dependent on state budgets to undertake infrastructure projects, and that the situation will worsen since stimulus spending in the US peaked in 2010 and will continue to fall in coming years.

Roth maintains that the US needs to embark on a strategic infrastructure programme like ones undertaken in India, Brazil and China, using public-private partnerships as “one arrow in the quiver”.

The Urban Land Institute interviewed 20 advisors, fund managers, lawyers, and policy experts for the report, including Robert Dove, managing director for infrastructure at the Carlyle Group; Joseph Aiello, North American chief executive of Meridiam Infrastructure; Mark Weisdorf, chief executive of JP Morgan Asset Management’s Infrastructure Investments Group; and Betty Massey, chair of the long-term recovery committee in Galveston, Texas.

The Urban Land Institute is a Washington D.C.-based research institute that focuses on land use, office and industrial real estate, and transportation trends. Ernst & Young is a London-based advisory firm with offices in 140 countries, according to its website.