After Chicago: Can New Jersey Breathe Life Back into the US P3 Parking Market?
Morgan Stanley’s Chicago Parking Meter (CPM) deal looks even more of an achievement now than it did in 2008 when the deal closed in the aftermath of Lehman Brothers’ failure and the drying up of global credit markets.
Its rival Citi Infrastructure Investors (CII) didn’t manage to raise the necessary capital to fund a proposed acquisition of Midway Airport – also in Chicago – in those same turbulent weeks when Wall Street CEOs, including John Mack of Morgan Stanley and Vikram Pandit of Citigroup, were trying to keep their firms alive.
CII got left with a break fee of USD126m for its trouble. Morgan Stanley got a metered parking system, but it had to tie up over USD1bn of its own equity to do the deal. It also had some well-publicized problems in operating those meters immediately following the acquisition.
But those problems are in the past and Morgan has since opted to add a tranche of debt finance to the CPM deal. It placed USD600m of ten-year notes with investors in the 144a private market last year freeing up its equity capital and enhancing equity returns in the process. Prior to that deal, it had sold equity in the asset to the Abu Dhabi Investment Authority (ADIA) and Allianz Capital Partners.
The Impact of the CPM Deal
Was Chicago a good deal? For Morgan Stanley, yes. For the city, maybe not. For the US P3 parking market, the jury is out.
What CPM illustrated, above all else, was the importance of political backing for supposedly apolitical parking transactions. Outgoing Chicago mayor, Richard M. Daley, stood firmly behind the deal. So too did the city council – it voted 40 to 5 vote in favor of it. That backing proved decisive.
In that respect, CPM was both a blessing and a curse. It was a blessing – for Morgan Stanley at least – because it showed that private capital had a role to play in running parking assets. That capital, in tandem with a parking operator, proved it could run those assets more efficiently than a public entity. And it could reduce the financial burden to the US taxpayer at the same time.
The curse of CPM, however, was that it galvanized naysayers in other cities – like Pittsburgh and Los Angeles – that are uncomfortable with the idea of Wall Street firms running their infrastructure assets.
Critics in those cities said that Chicago got the CPM deal badly wrong by under selling it. They might have a point. Not long after the ink had dried on the deal with Morgan Stanley, the Office of the Inspector General said the city of Chicago got half of what the deal was worth – USD1bn instead of USD2bn.
New Jersey’s Opportunity
New Jersey Transit’s (NJT) parking deal has a chance to resurrect the market for P3 parking deals. NJT can get a good deal for the Jersey taxpayer by avoiding the exact same deal that Chicago did. And it can get a good deal for investors at the same time.
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